Metals prices parted ways on Wednesday with gold following the prompt of the euro and rising while silver prices fell. It surely was a curious day with safe haven investments sticking their heads well above the tide in early trading. The Asian equity markets had melted down pretty badly over fears that Chinese authorities might not step in to help.
Sentiment has been sagging since the market topped out in August. Signs of weaker industrial demand and a slowdown in the pace of lending have created a panic that China will succumb to the same fate as the rest of the world in terms of achieving only very modest growth.
U.S. equities started off the session in Pavlovian fashion and simply went with the crowd. The turning event turned out to be a larger than expect rundown in U.S. crude oil inventories and a pick-up in the rate at which refineries were cracking oil barrels.
Before too long crude oil prices were sharply higher and lead to a reversal in equity prices. The data reflected a stronger view of the health of the economy than investors had previously given it credit. The September crude contract rallied to close at $72.42 from Tuesday's $66.75 per barrel close.
The immediate reaction accompanying the jump in crude was a surge in the value of the euro as it dusted off its recovery hat and rallied to close above $1.42. The euro has lately been under pressure on the grounds that a less than robust recovery favors the dollar more.
Hitched directly to the fortunes of the euro these days is the price of gold. It too had lagged of late, distressed by a stronger dollar and indecision as to whether inflation or deflation might be the enemy.
December gold rose to $944.80 in New York despite some conflicting fundamental data from the World Gold Council. It noted a decline in second quarter demand for gold compared to last year by 8.6% to 719.5 tons. Jewelers and electronics producer bought less gold on account of the recession. Consumption by jewelers fell by 22% but at the same time investment demand jumped by 46%.
The same data also showed that for the first time since 2000, central banks were net buyers of the yellow metal. The trick for investors is to balance the investment needs of speculators seeking shelter from a downturn for the economy against the possible rise in demand for jewelry in the event of economic turnaround.
Should be an easy gig!
The Daily Jurojin is a service of Tyche Research and is written by the Supreme Council of the Secret Order of Jurojin. More information can be found at www.jurojinweekly.com.
