Last week’s wide price swings continued to befuddle and frustrate speculators in the commodities’ space and for a fourth consecutive week the results revealed that hedge fund players placed their bets incorrectly in these markets. The China "factor" remained the principal drag on prices and that country’s prospects for a less-than-soft economic landing appears to have “petrified market speculators” – in the words of one US money manager.
In fact, if the recent data compiled by the International Strategy & Investment Group is correct, the world of hedge funds now appears to actually be giving up on bearish bets on equities and they are diverting money into them at the largest clip in two years’ time. For once, the “buy everything” syndrome (stocks and commodities in tandem) appears to be finally exhibiting some signs of dissipating. In part, such a shift is based on rising convictions that the US economy – recently expanding at 2% or so (a circa five-fold jump from levels seen one year ago) – will be very good for the performance of stocks.
The market “jury” appears to remain very much “out” on the degree of hardness that China’s landing is going to be defined by, but analysts warn that even the soft variety of same poses the threat of a lot of potential pain for commodity-exporting nation (Australia, Canada, Brazil come to mind) that have become heavily addicted to Chinese intake for “stuff” in recent years. The conclusion is – according to one ING commodities researcher – that “the idea that commodities are just a one-way bet as an asset class is over.”
Standard Bank’s latest tally on metals market speculative positioning reveals that players in gold and silver remained wary and that net selling of both metals occurred in the week ended March 23. Speculative longs in gold trimmed positions by nearly 81 tonnes and increased short bets by nearly 13 tonnes. In fact, the net sellers outnumbered net buyers for the first time in circa two months in gold.
ETFs shed balances as well for the first time in eight weeks, as they let go of more than eight tonnes of the yellow metals. In silver, the situation was largely similar but more so, as the data showed the addition of over 128 tonnes of short bets while long ones lost contracts totaling more than 213 tonnes. Meanwhile, silver-based ETFs sold roughly 30 tonnes of the white metal.
Precious metals opened firmer this morning but once again revealed just how over-dependent they are on practically every word that Mr. Bernanke utters (or does not utter) when he makes a speech. The mere mention of the fact that ultra-low interest rates are helpful to an economy that is trying to grow, and that such growth is what will stimulate US jobs creation, sent gold prices soaring by nearly 1% in early trading in New York, touching $1,680 in the process.
To be sure, all that the Fed Chairman actually said was that it is not yet clear that the recent positive job metrics will endure and that low rates are helpful, but the truth is that precious metals players remain desperately fixated on any promise of a QE3 by the Fed, or even the hint of one. Also helping the early price action to the upside this morning was the warning by Italian PM Mario Monti that the EU debt crisis could witness a fresh flare-up in the event that Spain’s financial situation veers out of control.
Mr. Monti noted that Spain has “not been paying a sufficient amount of attention to its public accounts.” On the other hand, after having lost more than 3% on the month thus far, repairs in the gold market are still the logical order of the day, and thus, the extension of Friday’s gains and the rebound in general ought not to come as too much of a surprise. Gold is off by 5.5% on the 30-day change counters at Kitco.com and silver is down 12.4% on the same indicator on a year-on-year basis. Friday night’s late update from the teams at Elliott Wave opines that while gold could be in the early stages of a “significant” decline, there are decent odds in place for a test back to $1,700-$1,730 at this juncture.
Physical markets remained relatively quiet as the situation in India remains tenuous for gold importers, fabricators, and would-be investors. While additional tariffs on finished goods in gold have not yet materialized and while the country’s jewelers continue to show their displeasure with governmental proposals related to the above, there is one concrete tax on gold that has actually been placed into effect. The Indian government is now levying a one percent tax at source for transactions in gold that involve cash. The move is seen as attempting to avert the flow of “black money” into the precious metal.
Silver gained 44 cents in the first half-hour of trading and was bid at $32.75 per ounce. The EW team’s opinion on the white metal is that it has now undergone seven downward waves and that the $33.09 level remains the one to watch as a pivotal one for the moment. A firm rise above that price marker could lift silver as high as the $38+ level before a downtrend resumes, while a breach of same could usher in additional price weakness.
Platinum and palladium each added $14 this morning to rise to $1,637.00 and to $670.00 respectively. Rhodium remained bid at $1,425 after having declined modestly last week. Platinum market speculative positioning showed additional short positions in the latest reporting period and a rise in same to well above last year’s average of 158,000 ounces. Palladium players appear to still be confident in the market but their optimism has been brought into question with the noble metal’s recent corrective action in prices.
In the background, the US dollar slipped by 0.20 on the trade-weighted index (last seen at 79.06) after the Bernanke speech unnerved dollar longs just a bit. Crude oil moved 20 cents higher to trade at $107.05 per barrel Barclays Capital analysts this morning wrote that they “expect the US dollar to do well against funding currencies (yen, Swiss franc and euro) in a world where US economic growth remains stable and Fed policy is little changed.” Stocks opened higher in New York and the Dow was ahead by nearly 70 points mainly on optimism related to the Bernanke speech and to previously released German economic confidence data.