Welcome to the "Flat-Market Society," where, this morning, the precious metals opened with one of the biggest non-moves we have witnessed since...one cannot remember. Whether players opted to wait for the release of the US jobs figures or simply saw no news that they could bite into and make a play based upon, was not clear. Over in Europe, team "Merkozy" or "Sarkel" (your choice) debated whether or not Greece ought to be allowed to default or have its debt restructured, but neither member of the duo left doors open to the notion that Greece might be jettisoned from the EU.
The fact is that, based on such a dearth of chewable news, gold opened..flat at $1,650, silver opened...flat, at $31.95, platinum added $3 and palladium dropped by the same $3. Some believe that the US automotive market is finally back on the road to..the good old days of sustained robust sales. The current run-rate of near 13 million annualized car sales should give some cause for optimism in the noble metals trading space. Copper advanced 0.50% and oil fell 0.50% while the greenback slipped less than 0.20% in early action. Maybe folks were out in Zuccotti Park watching NY's finest perhaps not being...their finest.
However, as is quite often the case with apparently stagnant markets, the accelerator pedal gets pressed when one least anticipates it. A quite robust nonfarm jobs report hit the wires this morning and stirred up the markets just in time for the coffee break hour. A small flurry of buying was noted in precious metals after the data release (mainly on account of a small slip in the greenback) but the rally was half-hearted, at best. The price advance fizzled and turned into a small decline within 90 minutes of trading action. Book-squaring was partially blamed for the reversal. Fatigue and apathy can take the blame for the remainder of the morning's yawner.
Morgan Stanley once again opined that gold and silver might shine brighter than ever in 2012 despite the fact that commodities overall are now set for their first annual decline since 2008 and despite the fact that some still (literally) see a picture of a bubble in an "irrational" investment; and one that may have recently been punctured. Take your pick. For the time being, gold is likely to finish the week with a decent advance overall.
The Labor Department noted that 103,000 positions were added to US payrolls in September, as against the 59,000 or so that had been anticipated by economists. To be fair, the final tally did contain 45,000 returning-to-work Verizon strikers and the overall jobless rate remained stubbornly steady at 9.1%.
The news sent European stocks higher and eventually US equity futures also turned higher in the wake of same. Coming on the heels of a week during which Mr. Bernanke told Congress that it needs to take concrete steps to address the unemployment issue and during which President Obama pushed hard to get his jobs plan passed, the news could be subject to some close scrutiny. America has been dealing with joblessness rates of in and around 9% since April. In the wake of today's jobs report, Pimco's Mr. Gross opined that unless the US economy can create a quarter of a million jobs month in and month out, there cannot be talk of expansion on the economic front.
Mr. Gross' Total Return Fund lost 0.4% this year (after posting five years' worth of near-eight percent gains) after it dumped US Treasuries from its books on account that they were seen as "too expensive." It turns out that the decision to dump them was that which turned out to be expensive. As for the gold and Treasuries armor-plating formula, well, Stock Traders Daily CEO Thomas H. Kee, Jr. chimes in with his opinions, right here.
With all of the commodity mania we have seen over the past few years, it invariably followed that one issue had to come to the forefront; the one that concerns storage. Hoarding metals and other "stuff" means one has to put them somewhere. Well, some feel that the backyard is the only logical place to bury one's stash, despite the advances that have been made in metal detection technology.
Others [falsely] believe that a bank safe deposit box is...safe. It is not. Not because the bank may fail, but because the little metal cubicle is completely un-insured and it merely a rented space you pay for. Should the physical building suffer damage from (insert your favorite natural or man-made disaster event right here), your "stack" will be as good as gone. Homeowner's insurance does not cover your bullion pile, either. Plus, how fast will you hand over your Maple Leafs when faced with the business end of a Mauser Mo3 Stalker?
Fear not; a booming (no longer at the cottage level) industry has sprung up to address the needs and wants of hoarders: warehousing. We are not talking here about the dyed-in-the-wool experts of the world of custody such as ViaMat or Brink's or the utterly reliable government-owned Perth Mint. No, Sir. We are talking about the same Goldman that first convinces one that $1,860 gold is still in the cards (or, in this case, perhaps, higher aluminum and other metals as well) and then offers to safeguard your pile of (x) from "nefarious" elements.
Can you spell: "conflict of interest?" Veteran Credit Agricole analyst Robin Bhar sure can. He says that "the conflict of interest is so acute he wants US and European anti-trust regulators to weigh in. "I think it makes a mockery of the market. It's a shame. This is an anti-competitive situation. It puts (some) companies at an advantage, and clearly the rest of the market at a disadvantage. It's a real, genuine concern. And I think the regulators have to look at it." Other analysts have also come to question why London's metals market allows big financial players like Goldman to own the warehouses which store huge quantities of metal even as they trade the commodity. It certainly casts a...different flavor on bullish commodity projections, to say the very least.
Perhaps such worries are premature, so to speak, certainly if some of the assumptions being made by the markets turn out to unfortunately (for MS) to be correct. Fox Business' Matt Egan reports that "Morgan Stanley was the next domino to fall in 2008," said Jim Rickards, senior managing director at Tangent Capital in New York, who was the lead negotiator of the 1998 rescue of imploding hedge fund Long-Term Capital Management." Market watchers are not all that sure that Morgan Stanley can overcome the stresses it is experiencing due to the European debt crisis. Its stock is back to 2008 price levels. Other, such as Treasury Secretary Geithner have flat-out declared that there shall be "no more Lehmans."
"Now that things are picking up where they left off, people remember that and figure Morgan Stanley is the next one to fall this time. Those bets are most clearly illustrated in the murky credit default swap market, which measures the cost to insure the debt of companies and countries against default. The cost to insure $10 million of Morgan Stanley's debt for five years hit $565,000 on Wednesday, up 34% from the week before and an incredible 75% from a month earlier, according to Markit."
This may be a stretch, but perhaps, if making money is difficult in the credit markets and in the French banking sector, Morgan's foray into the warehousing business is apparently explicable. After all, during the California Gold Rush you know darn well who made piles of money: the pick & shovel vendor by the name of Samuel Brannan. He only became the wealthiest man in California...
Enjoy your weekend! A Very Happy Thanksgiving Holiday to our Canadian readers!
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.