The US dollar traded at near flat-to-slightly-lower levels early this morning in the wake of fresh US economic statistics that revealed a small rise in initial jobless claims (up by 1,000 in the latest reporting period) and a hefty shrinkage in the country's trade deficit for the month of April. The decline in the US trade deficit tallied today was primarily a result of significantly lower imports from Japan, a factor which certainly did not come as a shock to analysts who had accounted for the effects of that country's natural disaster that took place in March. That said, it is also worth noting that US exports grew to a record $175.6 billion in April - a statistic that flies squarely in the face of those who claim that the "US produces and sells nothing anymore."
The jobs data was, of course, not a step in the right direction of course (analysts had expected a decline in filings) but the number was small enough not to derail the perception that the job market will improve later this year and more so, next year. Such a take on the US labor situation was also present in Philly Fed President Plosser's remarks made in London earlier today. Mr. Plosser projected that US joblessness levels will likely decline to between 7% and 7.5% by the end of 2012. While that is not quite "full employment" it is certainly a far cry from the present 9.1% level of unemployment manifest in America.
Although the US dollar lost a small bit of ground to the euro, the latter did not manage its early gain on the back of the fact that the ECB did not change interest rates as had been anticipated. Rather, the really tough anti-inflation talk and hints that rates will in fact be raised in July coming from the ECB's Jean-Claude Trichet were the main boosters of the European common currency, at least for a brief period.
The euro's early gains soon turned into minor losses as the greenback began a slow but steady push higher towards the 74.00 and then the 74.20 level on the trade-weighted index. Anti-inflation (and dollar-bolstering) remarks were also noted in the aforementioned London speech by Mr. Plosser this morning. He said that "we [the Fed] must carefully watch for signals of inflation and altered expectations to ensure that monetary policy stays ahead of the curve." Thus, Mr. Plosser framed his view that normalizing monetary policy "faster rather than slower" is preferable.
Against this background, spot gold dealings started the session with a small loss of $2.30 per ounce and the yellow metal was quoted at $1,535.30 in New York as crude oil was still on the rise with a quote at $101.50 per barrel. Gold remained tentative for the first two hours of trading and oscillated between the aforementioned $2+ losses and an equal-sized gain at one point.
"Fresh drivers, apply within" should well characterize this week's gold market action (or lack thereof, we should say). On the other hand, black gold gained following the failure of OPEC to come to a quota decision on production and after US inventories showed a decline that emboldened energy-oriented speculators to add positions.
On the other hand, the markets also continue to digest the latest Fed "Beige Book" which shows that the US economy has slowed for the first time this year in several regions that the survey normally tracks. While the American economy still grew across the 12 reporting regions, four of them showed slowing growth. Such sluggishness has immediately prompted some to clamor for QE3 to be launched by the Fed, even though the IMF opines that the US needs no additional stimulus and that its economy will pick up incoming months.
In fact, the markets (see the Dow among them) appear to have thrown a mini-tantrum this week not so much in the wake of weak economic data but more on account of the Fed basically implying that QE2 was the last gift it was willing (and perhaps able) to give to them. Mr. Bernanke cautioned that "monetary policy cannot be a panacea" and, thus, those who equated the Fed's buying Treasurys with a tacit strategy to basically "support" the buying of equities have expressed rising "discontent" with a central bank that has made life easy for those whose profits largely depend on "easy money."
Some of this week's emergent trend towards "No Mas Dinero" from the Fed has raised question about the "wisdom" of certain strategies and bets; say, like the ones that were made by, and are being still stuck to, by PIMCO and its chief, Bill Gross. Mr. Gross emphatically predicted this week that there shall be no QE3 while at the same time he stands to (via the PIMCO TRF) remain unprofitable (or worse) so long as QE3 does not land on the scene and it does not continue to divert money from the fixed income space into equities and most of all, commodities. Evidently, the fund manager in question is amenable to near-and-medium-term losses and is taking a longer-term view of the situation. His holders hope he is correct.
Silver opened with a 12-cent gain at $36.92 per ounce. The white metal remains well under the must-make-or-break overhead resistance target of $39.00 for the time being, but it is also about equally far from the close-to-the-$36.10 area of support, which, if breached on a closing basis might take it substantially lower on the price charts.
Platinum and palladium continued their march towards higher price ground this morning. The former added $8 to open at the $1,829.00 level and the latter climbed $6 to a near three-month peak and was showing a quote at $808.00 the ounce. Palladium demand appears to have been buoyant in European markets this week, Reuters reported.
Both metals gained despite the acknowledgement that China will indeed miss the forecasted auto sales targets for the current year as declines in car purchases last month contributed to such perceptions. Albeit the fall in May's auto demand was rather small (0.11%), it was still the first such counter-trend move in over two years' time.
No such woes, by the way, with the sales of "entry-level" $220,000 Porsches and other auto exotica in China. With 1.1 million newly minted millionaires looking to get rid of their nouvelle richesse, the market for hyper-cars in that country appears to know no bounds. Just don't put your hands on the gleaming paint, please.
Analysts blamed the auto sales results on the cessation of government car buying incentives, the spike in oil prices, and the spotty availability of Japanese models in the wake of the Sendai quake in March. Also contributing to the drop in sales was the fact the Chinese authorities have begun imposing car ownership limits in certain clogged-and-polluted-to-the-max cities in that nation.
The projections for an additional 10% to 15% growth in Chinese vehicle sales for 2011 will thus need a bit of...revising before too long - supercar sales notwithstanding. Note that overall Chinese vehicular sales showed gains at the 46% and 32.4% breakneck pace in 2009 and 2010. A gain of "only" 10% in 2011 would thus be seen as a de facto "crash."
Until tomorrow, do drive safely...
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.