Precious metals markets opened steady-to-higher for the midweek session in New York this morning. While gold and silver made only very modest advances that threatened to turn into potential losses, platinum and palladium staged fairly hefty rallies at the start of the trading day. Spot gold opened flat at $1,787.00 the ounce on the bid-side while silver gained a quarter to open at $40.16 the ounce. Overcoming the $40.50 area is still the white metal's "task" in order to try to draw near an ultimate short-terms potential target around $42.30 per ounce.
Gold, on the other hand, has the mission objective of once again trying to demolish the $1,800 psychological marker before the speculative crowd feels emboldened enough to reattempt the establishment of (or repeat of) the former pinnacle near $1,820.00 the ounce. None of this posturing in the market is stopping the increasing volume of "now you've heard it all" type of pronouncements being made about the yellow metal.
One school of (extreme) "thought" tenders some very specific targets: $5,200 by 2018 (!) (but does not give the time of day and day of the week, or the reasons for that price) and other adherents to the same "school" still promise us all $8,000 an ounce bullion. Never mind, they say, that (at least some) of the "big" money formerly in it found it opportune to "lighten up" in the precious metal (Soros, Mindich, etc.).
Another faction, on the other hand, is ringing the warning bells by pointing out that "Speculative demand from investors has pushed the gold market into a "bubble that is poised to burst" after prices surged to a record this year." No, those words of caution did not come from the desk of George Soros. They were issued this morning by Wells Fargo & Co. The firm sees "substantial" price risk to the yellow metal once the fear that "the world is coming to an end" abates.
Wells did not provide a time-specific target for the world's skies to "clear" but one must note that it did not refrain from placing the "bubble" label onto the precious metal; and not at some future date, but at present. As well, the nature of gold's achievement of recent records is specified: speculation. That word is defined as a conclusion based on incomplete facts and as a financial transaction that involves risk but is potentially profitable. Gold has now been profitable for 11 years...
Over in the platinum and palladium trading pits the two noble metals advanced strongly this morning. Perceptions that fundamentals are on the bulls' side and the "it's not so bad after all" type of take on the state of the global economy helped fund buyers drop a few "large" into the two metals and such action resulted in double-digit gains for each; the former advanced $25 to $1,838.00 (still, only a $60 premium to gold) and the latter climbed $23 to the $776.00 mark per ounce on the bid-side.
Head-scratcher of the morning: US PPI data indicated that prices have risen at a faster-than-anticipated rate in July and that higher inflation may be on the menu in the US (wouldn't the Fed be happy...). On that bit of news, gold...sank $5 (?) and did so despite a still-advancing crude oil (up $1.36 at $86.01 pbbl) and a drop of 0.41 in the US dollar on the index (to 73.66). The latter (almost) comes as no surprise, given what has recently been seen in the relationship between the two assets.
Meanwhile, over in the Old World, the Merkel-Sarkozy tete-a-tete resulted in disappointment amid perceptions that the couple was more interested in protecting the respective interests of Germany and France and less preoccupied with what the market believe is a situation begging for a concrete set of solutions.
The two leaders took aim at the financial services' sector and proposed the taxation of financial transactions along the lines of what is known as the "Tobin Tax." What was not proposed in the wake of the bilateral meeting was the augmentation of Europe's version of TARP or the creation of a collective Eurobond.
Thus, the markets were once again left with little more to resort to than to continue to fret and load up on a few more truckloads of Swiss franc banknotes. The action came on the heels of not only the end of the Franco-German meeting but also following the Swiss National Bank's stopping just short of announcing a specific peg between its currency and the euro.
Market observers still believe that the SNB will continue to try to stem the unwelcome gains in the country's currency but, for the moment, such observers (and currency traders) will just have to live with the cryptic: "we will, if necessary, take further measures against the strength of the franc." Franc-ly, my dear, someone gives a...you-know-what, but apparently the "nuclear option" of a euro-franc peg is seen as a very last resort tactic- for now.
Another central bank-that of China may be looking to expand the list of investment options for the nation's currency. Vice Premier Li outlined a fairly lengthy list of potential places where the yuan may eventually flow. Gold was conspicuously absent from the list. The items that made the cut were things such as expansion of the services sector in Hong Kong (actually, HK in general was the primary focus of Mr. Li's agenda items) and a flagship gas pipeline to be built, ending in...Hong Kong.
Also in the news this morning was the fact that the MPC over in the UK adopted a rather dovish stance and now has market observers believing that rate hikes in Britain might be somewhat further down the road than anticipated (or desirable, for that matter). Continuing on that "theme," St. Louis Fed President Bullard found it important enough to come out and say late yesterday that the Fed - despite common perception - is not signaling anything that is being called "QE3." Mr. Bullard said that he (too) would have dissented from the "extension of low rates" language that was utilized in the latest meeting of the FOMC, but added that "a new round of bond purchases does not follow naturally from the 2013 "pledge."
As things already stand, the Fed's "shopping spree" known as QE2 has drawn sharp criticism (for being ineffective) from certain...conservative quarters in Congress. None was "sharper" however than the frontal attack mounted by would-be President Rick Perry the other day.
Hands on hips and full of swagger, Mr. Perry effectively implied that he would rough-up Fed Chairman Ben "The Traitor" Bernanke, were he to make a miscalculation of "printing more money between now and 2012's election and then try to land in certain parts of the Lone Star State. My, my. A bullying Christian. One who equates monetary policy with treason. One who holds prayer meetings and then says that certain folks looking for social programs might wish to seek them in New York or California (but not Texas). Last one looked in the Bible, the teachings were about feeding the hungry as opposed to getting rid of them. Then again, the man also suggested that Texas ought to consider secession from the USA...
Mr. Perry's "handlers" (what a perfect term, sometimes used in the circus) tried to water down the "bodily harm" implications of his thoughtless utterances by saying that he became "passionate" in his criticism of the Fed. Beware the passion of the Perry. Bloomberg's editorial desk offers some concluding words on the matter as follows:
"It's clear that Perry has learned that Fed-bashing, however illogical, never fails to draw populist cheers. We can and should argue about how much the central bank should tinker with the money supply, and whether another round of quantitative easing passes the cost-benefit test, remembering that the Fed's mission is both to encourage growth and to stabilize prices. But calling such an effort treasonous, or politically motivated, shows either a puzzling lack of judgment or - more likely, we fear - a deep and worrisome cynicism."
Amen. Trip to the Alamo cancelled.
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.