Status Quo: Statist Quotes


By Jon Nadler

Mar 26 2009 10:31AM


Good Morning,

Gold prices firmed a bit in overnight action, following a slight easing in the US dollar and crude oil's advance to near $54 per barrel. Much of yesterday's advances in value were semantics-based plays. Players who interpreted Mr. Geithner's Wednesday remarks about China's call for a reevaluation of the global currency system, duked it out with those whose reading of the same transcript clearly showed that the Treasury Secretary sees the US dollar remaining the cornerstone of the international reserve system, for quite some time to come. The same speculative arm-wrestling in gold took place just a few days ago, when remarks about the dollar, reserves, SDRs, etc. coming from China were being reconciled with reassurances coming from the same place, as to continued commitment to remain dollar-centric reserve-wise.

Overall conditions still appear to favor a push towards higher values over the course of at least the next week. Final GDP figures for Q4 2008 revealed a 6.3% rate of contraction in the US economy, while initial jobless claims numbers showed more of the same; continuing job losses across the board, in sector after sector. The Dow has risen over 9% this month, but remains more than 11% down since the start of the year, and a staggering 45% down since its late 2007 peak.

The expected economic recovery is currently not being given high odds until sometime in 2010, and is still putting the market's bounce -impressive by any metric- under the 'suspect' and/or 'dead feline' category even among some of those who are actually buying into it. The equation remains somewhat of a triangular situation, with financials wagging the Dow's tail, while their own health largely depends on economic recovery.

Any such recovery remains a function of the financials doing what they are supposed to do (lend money to those who would drive a recovery), and so on. At the root of it all, however, is the continuing lack of confidence. Until that vital ingredient sees a significant restoration, little lasting progress can be made. It is, coincidentally, the same pattern that gold continues to benefit from at this juncture. The same explanation cannot be offered for the four-month highs being witnessed in oil and copper however.

The Obama administration continues to talk the talk and will once again send Tim Geithner out to the front lines of its PR campaign- this time, to sit in front of the US Congress and bring us his and Mr. Obama's vision of a radically changed future regulatory environment as regards most things financial (read: hedge funds and derivatives, for starters). Back at the ranch, the alphabet soup of programs and remedies continues to see cheques being written to needy entities (GM, for starters).

New York spot bullion dealings opened with a $5 gain in gold, a 9 cent rise in silver, and a hefty $26 advance in platinum. Participants bid gold at $939, silver at $13.60, and platinum at $1147 per ounce. Much of the buoyancy in platinum can be attributed to optimism relating to the eventual recovery in the US economy. Let's see how this shakes out when the automakers come under the interrogation lights next Tuesday.

Shortly after the open, gold climbed higher, trading near the upper $940s as the greenback slipped some more on the index. By the time this article was filed, the spot markets had given up most of those early gains and threatened to turn negative. Sentiment, sentiment. These remain largely 'looking-ahead' markets, with gold buyers anticipating what they see as inevitable inflation, and industrial metals buyers projecting higher demand levels from recovering industries. Be that as it may, the next week or two could benefit the longs who have bought and will buy on these rumours.

The inflation and recovery subject matters and questions remain liberally sprinkled with "if" and "when" - but, that's the nature of speculation. Current reality shows continuing trend shifts in the gold market's principal components of supply and demand. Such changes may be regarded as less than alarming for now, given the recent robustness of Western investment demand, but they will not be likely to remain consequence-free if the uncertainty levels around the world recede.

Reuters reports that India turned into a net exporter (!) of gold during this first trimester, as locals chose to melt their jewelry and sell into price strength.

"Indians, whose culture encourages them to put their savings into gold, are being put off by soaring prices and a slowing economy, while the metal has also slipped down the list of priorities. The rupee has depreciated against the dollar sufficiently to push local gold futures to a domestic record high last month of 16,040 rupees even though the global spot price is around 10 percent off its record of $1,030.80 an ounce hit a year ago.

Economic growth of 5.3 percent in the December quarter was India's slowest since the March quarter of 2003. While the country is far from recession, analysts say growth is grinding down to a level that threatens jobs and more poverty. "The next two years will be a difficult period for the economy," said Pansare. "There will be nervousness and there may not be a big increase in gold demand."

As urbanization gathers pace, gold has also been pushed down the shopping-lists of some middle class Indians in favor of real estate or appliances like air-conditioners and washing machines. Droves of Indians rushed to profit from the high price by taking trinkets to gold shops for sale, giving a dramatic fillip to the trade in scraps."

Practically every carefully choreographed statement coming from Beijing these days is being dissected and examined for potential subtext. That, we have seen. However, the one made today was far from being equivocal. It was as pure a PR statement as can be made in favor of the 'other' system. Take note - in excerpts brought to you from a current Bloomberg story:

"People’s Bank of China Governor Zhou Xiaochuan said the world’s third-largest economy is recovering and contrasted his government’s “decisive” action with delays in other countries. “Leading indicators are pointing to recovery of economic growth,” Zhou said in an article on the central bank’s Web site today. The government “has taken prompt, decisive and effective policy measures, demonstrating its superior system advantage when it comes to making vital policy decisions,” he said.

Zhou called this week for the creation of a new international reserve currency, signaling concern at the dollar’s weakness and China’s ambitions for a leadership role at next week’s Group of 20 summit. Finance Minister Xie Xuren urged world leaders today to step up economic stimulus to restore market confidence and to fend off trade protectionism. “China has clearly been moving ahead of the rest of the G- 20 in terms of thought leadership and laying the groundwork for what will be discussed,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “China responded extremely quickly and with great vigor to the slowdown.”

G-20 leaders convene in London April 2 to find ways of strengthening international regulation in the aftermath of the worst financial crisis since the 1930s. China is becoming more assertive on international monetary and economic issues as the G-20 summit approaches. Earlier this month, Premier Wen Jiabao said he was worried about the value of China’s Treasury holdings and asked the U.S. to guarantee their safety. Zhou said today that governments should consider giving mandates to finance ministries and central banks to use extraordinary means to contain systemic risk “in order to allow them to act boldly and expeditiously without having to go through a lengthy or even painful approval process.”

U.S. Treasury Secretary Timothy Geithner called this week for expanded government powers to deal with failing non-bank financial institutions such as American International Group Inc. Today, Geithner is expected to ask Congress to bring large hedge funds, private-equity firms and derivatives markets under federal supervision for the first time as part of a revamp of U.S. financial rules, administration officials said on condition of anonymity. On China’s economy, Zhou said measures already taken have produced “preliminary” results and the “rapid decline in growth has been curbed.” Besides the stimulus package, China has cut interest rates five times since September, has offered incentives for exporters and has stalled the gain in its currency to achieve an economic growth target of 8 percent.

The Shanghai Composite Index gained 3.1 percent to the highest level in six weeks today. The gauge is the best performer this year among 89 benchmark measures tracked worldwide by Bloomberg. Hong Kong billionaire Li Ka-shing said in Hong Kong today that investors with cash should consider buying equities and real estate, adding China’s economic recovery will be the “fastest.” China’s growth slid to the weakest pace in seven years in the fourth quarter as trade slumped because of the global recession. "

Hmmm...same measures (easing, injections, spending plans, regulation) different outcomes? Evidently, yes - so we are told. Maybe this comeback is what copper and oil are reflecting these days. Jawboning ahead of the G-20 summit? Why, of course. One system being 'superior' to the other? Let's leave that discussion for a future installment of a Kitcommentary. Hint: given today's state of the world, it could be that both are anachronisms.

Happy Holding Patterns.

PS - No afternoon comment today or tomorrow. On the road again...

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal


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