A quiet start was on tap for gold and silver this morning as no significant changes took place in the crude oil and currency markets. Platinum and palladium staged modest advances however. Spot gold dealings opened with a loss of $2.20 per ounce and were quoted at the $1,493.70 level on the bid side in New York.
The overnight highs in the yellow metal came in at a level that was just 60 cents shy of the round $1,500 figure. Late afternoon Elliott Wave analysis opined that gold continues to apparently drive towards a target where trendlines converge, at the $1,535 area. However, the analytical EW team also notes that the Daily Sentiment Index (trade-futures.com) has now matched its previous extreme, with a 95% bullish level on display.
Silver spot fell 18 cents to start Tuesday's session off at $43.20 the ounce. The bullish consensus picture in the white metal is even more reflective of speculative euphoric conditions, with the aforementioned EW team now noting a 95% level of bulls in the Daily Sentiment Index and a higher than 93% level in the 10-day average of the Market Vane Bullish Consensus indicator.
EW warned that "extremes are extremes and have to be recognized as such otherwise one gets caught up with the crowd and fails to extricate themselves at a reversal." Ignoring a 5% decline in European new car registrations, platinum gained $5 to open at $1,784.00 while palladium added $8 to rise to the $741.00 mark per troy ounce. Rhodium market quotes remained unchanged at $2,300 bid/ $2,500 offer per ounce. The mood in the noble metals' niche was more than likely being lifted by a Honda announcement that it was restarting auto assembly lines.
Our analyst friends at Standard Bank (SA) noted that Monday's action in the PGM space "diverged from gold, as reduced confidence in the global recovery re-ignited doubts over industrial demand, in a market that remains uneasy over the impact of the Japanese earthquake. Speculative liquidation continued on TOCOM, although PGMs managed to hold their ground overnight." They also observed that "some bargain buying and dollar weakness is providing some support this morning, although moves have been tentative so far. The modest increase in Eurozone PMI manufacturing for April (57.7 from 57.5 in March) could also lend some support to PGMs."
Meanwhile, questions also continue to swirl around the issue of what the Fed might or might not do when its QE2 program comes to an end in June, and, with one week to go ahead of the next FOMC meeting, they have only become more visible. Some market watchers expect to hear or read clues as to the next phases of the Fed's policies when next week's meeting concludes. However, surveys and polls are already focused on what the months beyond July might bring.
Bloomberg notes that "Most of the 50 analysts in a survey [conducted] last month expected the Fed to keep its bond portfolio stable for some time after the purchases end, with a plurality of 16 betting on a period of four to six months. Five economists said the Fed would halt the policy once QE2 ends; 11 said it would keep reinvesting for one to three months; 14 said seven to nine months, and four said more than nine months."
Also this morning, crude oil was down by nearly $1 at $106.15 per barrel but continued to be supported by the on-going siege in Misrata, Libya, where Gaddafi loyalists and rebels aided by the UN coalition are still in the midst of a military stalemate. The US dollar declined marginally on the trade-weighted index but maintained the $75.10 level following an afternoon recovery on Monday that came despite the lowering of the S&P's outlook on US debt.
Do take note of the fact that the S&P shift did not represent a change in the US' credit rating. Markets witnessed a plethora of headlines such as these on Monday, which led many to erroneously conclude that the rating agency had in fact knocked the AAA rating of the US down a notch or more. Our own Globe and Mail concludes that the S&P's shift in outlook basically amounted to an "unprecedented scolding" that was intended to "puncture the mood of optimism" that resulted from President Obama's presentation of a US deficit-shrinking plan last week.
In fact, the S&P deliberately underlined the risk being posed by "political negotiations" on what to do about the deficit, and when to do it. The rating agency feels that the solutions to the problem might only be on offer after the 2012 US national elections, and that is why it raised the red flag on Monday. The Atlantic reminds us that "the US debt problems are large, and they will be painful to solve. But they are not intractably large or painful. It is our bitter, partisan politics - and our own willingness to compromise, or even face reality - that is putting us at the most risk."
However, the entire issue of ratings being issued, as well as what they might mean at a particular moment in time, should be brought into any such discussions for the sake of fairness. It is an open secret that vast amounts of criticism have been leveled at the CRAs (credit ratings agencies) in the aftermath of the staggering losses that took place in the CDO niche just a couple of years back.
For instance, losses of $125 million on more than a third of a billion dollars' worth of CDOs that had been issued by the Credit Suisse Group came despite such instruments having received a AAA or Aaa rating by...Standard & Poor's, Moody's Investors Service, and the Fitch Group. When pressed for answers to such generous ratings, CRA executives and fired back at Congressional investigators with the reminder that all their agencies really do is to offer "opinion."
Well, then, yesterday's shift in outlook is also, only "opinion." It is rather ironic that Wall Street should be the one questioning the long-term credit status of the US following what has transpired...on Wall Street of late. This morning, Treasury Secretary Geithner stressed that he disagrees with the S&P statement. In his opinion.
And that concludes the assembly of fact and opinion on offer this morning.
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.