Gold built on its $40 Wednesday loss after hours and fell further in electronic trading in the early evening hours. The overnight dip to the $1,580s in gold did however attract a sufficient amount of bargain-hunting buyers to bring the yellow metal back to above the $1,600 mark by Thursday morning's opening bell in New York. Still, global investors remain on alert for eurozone-related market surprises that could impact the commodities' space and further erode values in coming sessions.
With but one day to go in the month, spot gold is off by $176 on the 30-day tally and is about $300 down from its double-top levels. Overnight markets were not kind to silver either, as the white metal probed under the $30 mark in a fast-paced evening sell-off and then managed a climb back above the round figure this morning.
Late afternoon Elliott Wave analysis sees the precious metal trading towards the bottom ($1,614) of its recent channel, which, if breached, could draw prices initially to near the $1,300 mark and then an eventual target near $1040 the ounce. A rise above $1,670 might delay the commencement of the next down-leg in values. Broad resistance is found in the $1,675-$1,750 zone at this point.
New York opening prices were all mildly higher this morning as the US dollar retreated by 0.53 on the trade-weighted index following news that the German legislature had passed the measure intended to beef up "Das Tarp" (the "EFSF" by another name) and that despite stalling on the part of countries such as Slovakia (?!) the odds are slowly but surely tilting towards a positive resolution to the crisis that has gotten the "attention" of most of the world's markets and of the stewards of their respective economies.
Spot gold climbed $2.60 per ounce to open at $1,612 this morning while spot silver advanced 14 cents to start the day at $30.07 the ounce. Physical demand is being banked upon to keep optimism alive among the bulls but the seasonality factor turns out to be less than reliable, historically speaking, if and when gold prices commence a surge once again. Indian festival season comes in late October.
For the time being, the sporadic bargain hunting that emerged from Thailand and China-based buyers was offset by the absence of participant in the West, some of whom were on hiatus due to the Jewish high holidays. Volatility is likely to remain manifest ahead of Rosh Hashanah on Friday, the end-of-the-quarter book-squaring rituals, and China's start on Monday of "Golden Week" holidays.
In September and October of 2009, note the analysts at Standard Bank (SA), gold moved up by 13% (from $950 to $1060) and physical demand collapsed (while scrap sales intensified) despite what the calendar said was supposed to be a high-demand season for the yellow metal. Silver now seems to be moving closer to lockstep patterns with gold and it could potentially be aiming towards the $22-$25 area but such a move could also be delayed if in fact the white metal manages a push above the $33 level. Resistance above that mark is found broadly within the $34 to $37 zone in prices.
Platinum initially fell $3 but then climbed above the unchanged mark by the same amount and basically hovered around the $1,520 level. Palladium gained $3 as well, opening at the $620 level while rhodium shed $25 to level off at $1,700 on the bid side. In the background, the price of a barrel of crude oil rose by 57 cents to $81.78 and copper made a barely perceptible tick higher, climbing $0.0005 (!) to $3.2058 on the bid-side. Let's call all these advances...timid (for now). The same can be said about the Nikkei's 85-point lift in Tokyo overnight. Dow futures appeared set for a more upbeat day.
A surprising drop in US initial jobless claims filings (down 37,000 on the latest reporting week) to under the 400K level was initially greeted with joy but the US Labor Department attributed it to "technical" adjustments, in effect telling the markets "not so fast!" as the looking-back figures are normally subject to revisionist practices, such as the upward adjustment of the numbers it issued two weeks ago. Mr. Bernanke still calls the US unemployment situation a "national crisis" which - he feels - the White House and Congress must address in concert with finding solutions to the nation's housing debacle.
In the category of "somewhat better news that you can sink your teeth into" this morning, the US' second quarter GDP was revised...drum-roll...upwardly. From the initial 1% estimate to the now 1.35 mark as tendered by the Commerce Department this morning. Construction spending and personal consumer spending were cited as prime factors in the adjustment of the economic metric. Still, if polled investors turn out to be correct, the crisis in the Old World might yet precipitate a contraction in a couple of extremely important economies (that of Europe and that of the USA) if not a global-scope one perhaps.
Anyway, predictions and perceptions good at one time are practically made to be disproved later, in more than one type of instance. Remember the famous prediction by Ms. Meredith Whitney (made less than one year ago) that we would be witnessing hundreds of billions of dollars in the municipals' space? We do too.
Gloom-obsessed investors lapped up that dark Kool-Aid by the bucketful as it suited their mood at the time. Time for a reality check, says Bloomberg News' Darrell Preston. It turns out that there was such a default, indeed; by...one (!) US municipality, in Alabama. That's it. Certainly not the projected "hundreds of billions." In fact, muni debt has returned 9.1% in the current year; not a shabby performance, by any metric, but one that many who followed the aforementioned doomsday prediction evidently missed out on.
In fact, third-quarter muni-bond issuance has experienced quite a jump as issuers were seen returning to the market after a fairly slow (but lacking the predicted implosion) first half of the year. Investors who sought safer investments that yield better than Treasurys continue to be attracted to their tax-exempt yields - currently higher than those offered by taxable Treasury bonds. About $28 billion of such instruments will likely be issued this month, fueled in part by New York and California bonds. The overall muni bond market is nearly $3 trillion in size and there have been recent efforts made to form a mutual bond-insurance company for debt being sold by states and local governments.
K.C. Fed President Thomas Hoenig retires this week. Some are looking forward to the man speaking more freely than even before from the safety and comfort of his favorite easy chair in coming months. Perhaps a book might be in order as well. Mr. Hoenig has had many a wise thing to say about Fed policy, even if most of the time his words sounded nearly as criticism-laden as one might expect of say, Ron Paul. NPR has a very interesting clip recorded with Mr. Hoenig recently; one that is well-worth your listening time. Here are some nuggets of brilliant observations made by Mr. Hoenig, leading off with one that he might most consistently be remember for:
"I have systematically opposed the use of money as a mechanism to solve all of our problems. You cannot tell me a business, a commodity, a service that trades well at the price of zero and allocates resources as well at the price of zero. Why would it do so with interest rates? It won't."
"In a world of instant gratification, we have had two decades in this country of consuming more than we produce by a considerable margin."
"Washington has become addicted to low interest rates, which has given lawmakers cover to paper over serious long term problems with short term fixes."
"We need to add jobs, but the problem is you don't just add jobs. You produce things, you make things and from that, jobs come."
"[Our] leaders need an attitude adjustment to think long term, to get serious about, among other things, the deficit. They should pass a broad package of spending cuts and tax hikes like the ones the Simpson-Bowles Commission outlined last year."
At least in K.C., yesterday morning, such honest words got Mr. Hoenig a standing ovation and much applause. Here, here.
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.