After having traded some $40 below the $1,266.00 pinnacle that had been achieved just 24 hours ago, gold prices attempted to regain their lost footing during the overnight hours. The advent of a bearish signal on Thursday had market participants on edge and, perhaps more than on many a past Friday, on the lookout for the Labor Department's assessment of the US unemployment scene.
The decline that gold experienced from the aforementioned peak was the largest in about two months' time. Fund participation is continuing to define this market - and that is not a factor to draw comfort from, not at all. Today's potential gains following a less-than-stellar jobs report could erase much of the Thursday price collapse.
However, judging by the volatility in prices that followed the release of the jobs figures (a sharp, $10 upward spike, followed by... a slippage in values back into negative territory), it could still shape up to be a wild ride of a day...Yesterday, Dennis Gartman remarked that "the fact remains the [gold] fever is high and fevers break. So too shall this one. When it does, a $100/ounce break in price will be swift, violent, and certain."
Yesterday's drop in initial jobless claims and the dollar-supportive statements made by...the ECB's (!) Mr. Trichet were sufficient in triggering a mini-run for the exit doors among hitherto uber-confident gold speculators. Late-arriving retail investors were, as usual, left scratching their heads as to why the cocksure prognostications for a lunar landing in gold prices, made on the very morning of Thursday, did not materialize by, say, day's end - as had been the case for some two weeks.
At any rate, on the demand side of the gold fundamentals, the market appears to have lost at least one foot-soldier, in the form of AngloGold Ashanti. The firm is thought to have bought nearly 100 tonnes of yellow metal over the past ninety days (thus lending credibility to the school of thought that sees it as a major contributor to the gold price spike that became manifest during the period) as its hedge book was euthanized.
The firm now says that it will "enjoy" full "exposure" to the gold price. Come what may... Meanwhile, the World Gold Council said it "expects" central banks to become net buyers of gold next year. Indeed, "expects" - in this case - is sounding a bit more like a demand than an assumption. The jury remains very much out on the behavior of the official sector and inconsistency continues to define that niche. Thus, one ought not to bank too much on...banks.
This morning's spot gold dealings managed to open the final session of what has certainly been a tumultuous week with a small, 80-cent gain and a quote of $1,334.40 on the bid-side of spot prices. Dollar strength was being offset by some modest physical buying as shown on the Kitco Gold Index (now celebrating its first birthday). Silver prices added one dime on the open, starting the Friday session off at $ 22.60 following yesterday's mini-rout in values.
Platinum shed $8.00 on the open, with spot prices being quoted at $1,687.00 per ounce while palladium was off by $2.00 at $581.00 the ounce. Several luxury carmakers (Mercedes and BMW among them) reported improved September unit sales. Norilsk Nickel, the global leader in palladium production, said this morning that Russian state stockpiles of the noble metal may be "finished" come 2011.
Palladium has been the stand-out performer in the precious metals complex in 2009, as well as this year. In the background, the US dollar was climbing on the index (last seen at 77.58) and crude oil fell 84 cents (to $80.83) ahead of the release of the US jobs data. Dow futures were aiming lower just ahead of the numbers from the Labor Department.
Prognostications as to the state of the US labor market were not in short supply ahead of the release of the data this morning. Many an analyst foresaw a basically mediocre report card being issued; one that would show a drop in non-farm payrolls but, aside from the elimination of a few thousand more temporary US Census workers, a private sector that created somewhere near 85,000 positions. The degree to which anything in the US economy is perceived as improving (or not) will become the pivot upon which many a trade will be decided as it might lead to the Fed tilting one way or another come November.
Well, the pre-release punditry turned out to be correct, as well as not quite correct. First, the overall unemployment fell to 9.6% as against expectations of a 9.7% figure. Private payrolls were up 64,000 as against some 85,000 expected. The headline number (sure to be focused upon by dollar and gold traders) showed 95,000 nonfarm positions lost last month.
This, as expectations were in place for only a modest, (sub-10,000 positions) loss in payrolls. Most such eliminations were at the state and local government levels (read: Census-related) but the losses were still outpacing the creation of positions by the private sector. In all, a boost in confidence levels for those who see Fed easing as "inevitable."
You can now confidently add "Fed wars," (as in: internecine discord among Fed members - voting, or non-voting) to this week's emergent most overused term: "currency wars." Suddenly, everyone is an expert of currencies, national policies regarding same, and central bank behavior relating to same, as we go forward. Daily predictions are now being made as to the likelihood of a "race to the bottom" (another tired clich'e) and/or of "competitive quantitative easing" and other such fearsome-sounding (and sure to be misinterpreted by the average investor) terminology.
At any rate, Fed members continue to be at odds over what should and/or what might be done at the next meeting in November. St. Louis Fed President Bullard said that there is no "obvious" case for more stimulus, contradicting those who see QE2 as a "given." Mr. Bullard observed that while the US economy has indeed shown signs of slowing in the pace of its recovery, the degree of the lost momentum does not automatically imply that something must be done.
Mr. Bullard has thus joined Messrs. Fisher and Plosser (not to mention ultra-hawk Hoenig who sounds a lot like Mr. Trichet over in Europe) in opining that a) further easing may not be required and b) that such accommodation by the Fed may not be effective in, say, creating jobs - if that is the bulls-eye the Fed is targeting. Mr. Fisher warned overconfident investors not to assume that the Fed will ease and cautioned that "markets have drawn too quick a conclusion" about the prospects for same.
On the "currency war" front, meanwhile, billionaire George Soros threw in his (presumably US) two-pennies' worth of cautionary remarks by stating that he shares "concerns about the misalignment of currencies." In a way, the clashes in the FX markets are seen as a "war by proxy" between widely different economic and political systems (see China versus the US, versus Japan, versus Brazil, versus Russia, etc.).
Using one's currency as a weapon raises the risk of "collateral damage" to the global economy, at a time when interdependence is no longer in question, and at a time when said economy can ill-afford another man-made crisis. And, thus, the IMF might have a heckuva job (starting today) in trying to be the voice of reason in this little overheated schoolyard...The IMF is all too aware that certain economies can still ruin others ones with but the push of a red (currency) button. Were it not for the chain-reaction to follow. It's "MAD" all over again. Only this time, it is not based on nukes, but, rather, on exports as supported by weak currencies. Good for the next day or five, terrible down the road. Anyone want to start that one?
Have a pleasant weekend. No fighting.
Jon Nadler is senior analyst with Kitco Bullion Dealers in Montreal.