A US government shutdown was averted in last minute negotiations late on Friday night and the pressure that the approaching event was placing on the US dollar was seen abating this morning by currency traders. The small boost that the greenback received, along with a larger than $1 decline in crude oil prices following news that Col. Gaddafi has agreed to a cease-fire under pressure from the African Union prompted profit-taking to emerge across the board in the commodity complex. Silver remained the lone and curious standout in pre-opening market action and was still rising on inertia from last week's speculation-fueled nearly 9% gain. Analysts at UBS noted that "It takes a brave investor to buy silver right now."
Monday's precious metals trading opened with losses in three out of the four principal metals we track and with no change in rhodium. Gold fell $7.60 per ounce at the start of the first session of the week, touching the $1,467.40 mark as speculators sold the metal following a scaling of peaks near $1,477.00 on dollar bearishness and generalized euphoria in the commodities' complex. Despite 'frothy' conditions as reflected in bullish sentiment levels (93% in gold, and 96% in silver) net speculative length for the metals continued to rise in the latest set of CFTC-originated data.
CFTC data also shows that dollar bears - a species that roamed quite freely last week as the US government appeared to be heading for a shutdown- are contemplating staking out a possible summer hibernation cave in the wake of recent Fed jawboning. Bloomberg reports that "Statements by central bankers have encouraged dollar bulls. Fed Bank Presidents Thomas Hoenig, Jeffrey Lacker, Charles Plosser and James Bullard have signaled optimism about the U.S., with St. Louis Fed President Bullard saying the central bank may be able to cut about $100 billion from its $600 bond-buying plan. The Federal Open Market Committee has reiterated rates will be kept at "exceptionally low levels" for an "extended period" for the past 25 months."
Bloomberg goes on to note that, as a result of such central bank posturing "futures traders have trimmed holdings on the dollar's decline over the last month, data from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a drop in the dollar compared with those on a gain reached 405,267 last month, the most since the data began in 2003."
Meanwhile, Standard Bank's (SA) analysts noted this morning that, as regards gold's speculative positioning "Speculative shorts, currently at 131.7 tonnes, are still relatively high compared to last year's average of 90.7 tonnes, indicative of a market not as confident in gold's prospects as in 2010. This is most likely attributable to concerns over an end to US monetary accommodation. Nevertheless, should risk aversion continue to dominate markets (political unrest in the MENA region and debt concerns in the Eurozone), these short positions could fall further."
As for the never-ending reports and hard-money newsletter "flash-alerts" that the greenback is about to fall off a cliff or that it is ready for embalming, the Bloomberg reports reveals that, in fact, the US currency "while weakening, remains the world's reserve currency. The dollar's share of foreign reserves held steady in 2010, ending at 61.4 percent, according to the International Monetary Fund in Washington. The dollar was involved in 85 percent of currency trades from April 2007 to April 2010, compared with 90 percent in the three years through 2001, data compiled by the Bank for International Settlements in Basel, Switzerland show."
Silver continued to advance, albeit with much smaller gains than previously on display; it rose 29 cents on the open to a quote of $41.22 the ounce. It recorded another 31-year peak at one penny under $42 earlier on. Veteran market analyst Ned Schmidt continued to suggest that silver -at current levels- remains "a sale candidate." In the background, crude oil was trading at $111.69 per barrel (off $1.10) and the US dollar was 0.15 higher on the trade-weighted index, quoted at $75.06 at last check.
Elliott Wave analysis issued late on Friday pointed to the fact that [alluding to the back-to-back days of 96% silver bulls] "one would expect sentiment extremes at the outer edge of a vertical price rise as a broad consensus solidifies that believes in even higher prices. Silver is there. There is no wave relationship that we can discuss, but when the trend reversal comes, it will consist of a crash, similar to the behavior of every other reversal after a commodity spike top."
Also contributing to the aforementioned decline in oil values was the news that the IMF has trimmed its growth forecasts for the US and for Japan while stating that current price tags pose a "new risk to the global economy's expansion." The IMF did not however alter its overall forecast for global growth even as it cited the potential threat being posed by ultra-high black gold prices. Meanwhile, Commerzbank analysts emphasized that "current prices aren't justified by the supply-and-demand scenario." That is also quite the case not just for crude oil, mind you.
Platinum and palladium dropped this morning as mild profit-taking was also manifest in that sector and as automotive world news did not exactly boost further speculative interest in the noble metals. The former was down $12.00 per ounce at the $1,797.00 mark while the latter slipped $2 to open at the $793.00 per ounce bid level. Fresh news continue to indicate that certain Japanese automakers may halt production at various US facilities in order to catch up with logistical issues that have arisen in the wake of last month's quake. Meanwhile, the China Association of Automobile Manufacturers revealed that March car sales in that country came in below expectations in the wake of the cessation of incentive programs.
What was most notable in the CAAM sales findings is the fact that March has traditionally been a peak month for auto sales in China as it comes on the heels of local New Year's celebrations. Estimations are that China's total annual sales of cars in 2011 may not meet expectations of a 10 to 15 percent increase and will certainly not match the 32 record sales gain noted in 2010. More than 18 million new vehicles were snapped up from dealers across the country last year.
Back to the USA, where, now that the government continues to operate, the focus shifts to Wednesday's speech by President Obama regarding the trimming of the massive federal deficit. A potentially highly dollar-beneficial topic, the resolve to cut and cut some more will be the apparent focus of Mr. Obama's presentation. Specific debt-reduction targets and a specific timeline within which to accomplish certain cuts will be featured in Mr. Obama's address to the nation.
While the contentious debate and last-minute wrangling between congressional leaders and the President on the topic of the looming government shutdown last week kept many on edge (especially currency traders) the "other deadline" that is fast-approaching is the one related to raising the US' debt ceiling. White House sources have indicated well in advance of that event that "We should not be playing brinksmanship with [the] full faith and credit of the United States."
Our full attention to the above issues and a faithful watch on related news items is hereby guaranteed.
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.