The abbreviated trading week finished with a larger-than-two-percent value loss in gold and with not much fresh taking of major positions by market participants in the precious metals complex. In the wake of the deep losses incurred on Tuesday and on Wednesday the markets basically treaded water awaiting any lead from the Friday jobs report or from perhaps crude oil, copper, or the equity sector. The US dollar climbed once again before Good Friday, this time vaulting to above the pivotal 80.00 figure on the trade-weighted index, as additional constructive news was received from the US jobs and consumer scenes. Friday was a bit of a different story however, as you will see below.
According to Daily FX’s technical analyst Ilya Spivak, spot gold hovered near the $1,625 area after having taken out the 38.2% Fibonacci expansion support figure at $1,634.76 and challenging the 50% level of same at $1,615.46 per ounce. Should a breach of that number take place, the immediate target points to the $1,596.15 mark, i.e. the 61.8% Fibonacci level.
The weekly Bloomberg survey of gold traders reported yesterday that for the first time in 2012 the group was bearish on gold in the wake of the Fed’s signal that additional monetary stimulus may not take place. Bloomberg also reported that, as of yesterday, spot gold’s 100-day moving average dropped below the 200-day measure for the first time in three years last week, reinforcing a bearish trend, UBS said in a report yesterday. Its 14-day relative-strength index is at 37.7, with a level of 30 indicating to some analysts that a rebound may be due. Whether or not that bounce was over with Thursday’s $10 gain, remains to be seen.
As well, the Bloomberg-surveyed gold trade appears to be apprehensive about India’s jewelers’ strike, now entering its third week. There are reports that Indian gold imports may have plunged by 81% in March and that they may drop by 40% in Q2. India’s gold baubles vendors normally move more gold in one year than the cumulative output of US and Australian mines. Their actions (and current inaction) bear close watching. However, on a more macro-level, the conditions that helped boost gold values quite significantly over recent years-a weak dollar and negative growth in global economies-appear to both be undergoing a shift which could make gold not quite as attractive within the commodity asset class as it has previously been.
This is the paradigm of the moment, according to Fidelity’s multi-asset fund manager, Trevor Greetham, who currently sees crude oil as being a superior hedge in safe-haven or inflation-protection terms. Meanwhile, Marketwatch’s regular contributor, Chuck Jaffe, notes that “what’s interesting about the market’s current decline in gold is that it has come on days that, just a year ago, would have sent investors running to gold for protection. Gold’s allure as a refuge amid crises seems to have been reduced, if only because the economy has picked up and talk of worst-case scenarios playing out in the United States and Europe has abated.”
As regards silver, the white metal is seen by the aforementioned Mr. Spivak as “consolidating beneath the resistance level of $32.93 and exhibiting a head-and-shoulders setup that broadly implies a downside target at $26.4 per ounce.” A Reuters report appearing on CNBC yesterday suggests that record-high mine supply and sudden doubts about demand are casting “a long shadow over silver’s underlying fundamentals.”
One market observer, Angelos Damaskos, the CEO of Sector Investment Management notes that “the dislocation in the valuation between the very sharply rising gold price and silver, which underperformed for 10 years, was so large that the investment community jumped on the bandwagon and drove its price high within a year. Now we are back to the normal situation, where silver behaves much more like industrial metal. Investors are no longer looking at it as a safe-haven asset. It will probably underperform for a good few years." We had described the fundamentals flaws at work in the silver market some time ago in these columns.
As for platinum and palladium, well, the fundamentals-flavored market news and the value projections continue to be comparatively superior to those we are finding for gold and (especially) silver. BNP Paribas figures that palladium’s fundamentals will show steady improvement during the current year. The firm is projecting a 2012 palladium supply deficit as well as an average price of US$825.00 per ounce for the noble metal.
BNP Paribas is forecasting an average of $1,125 an ounce for palladium in 2013 it expects it to out-perform its rivals in the precious metals space .BNP Paribas is also optimistic on the price outlook for platinum this year as well as next, owing to supply side constraints in South Africa and Zimbabwe which are going to continue to be market-supportive. BNP analysts anticipate that platinum could average $1,840 per ounce this year and rise to an average of $2,320 an ounce next year.
Some of the above projections will, at least in part , depend on what happens with the Chinese economy and the Chinese consumer as we move forward. The Chinese automotive market can certainly no longer be ignored owing to the size and scope it has reached (it is vying with the US one). At least one China-watcher, Mr. Jim Walker (Founder of Asianomics) flat-out warns that “China’s consumption boom is drawing to a close, [an event] which calls for no growth or even a contraction in the Chinese economy and the advent of an era of deflation and weaker spending.”
Mr. Walker therefore projects that ”investments leveraged to the rise of the Chinese consumer, ranging from Australian miners to luxury-handbag makers and even iPhones are due for a reality check.” Speaking of things in need of a reality check, the idea that a good portion of current Chinese gold investment is not flavored by a heavy dose of speculation and greed needs to be given a thorough check-up. There is a dark side to the obsession with easy money to be made in gold. This story should be sobering.
Anyway, before you summarily dismiss Mr. Walker as just another China doomsayer, do note that the gentleman is an adherent to the controversial school of Austrian economics (one which gold bugs love to embrace). Mr. Walker opines that believes that China’s low interest rates “have helped stoke mal-investment on a scale never seen before, and that another government stimulus package appears unlikely, given a glut of overbuilding, including transportation projects such as airports.” Mr. Walker admits that his view that a deflationary fallout that lies ahead for China “will come as a surprise to people who don’t believe that the Chinese economy can have a cycle.”
US unemployment claims filings reported yesterday fell to their lowest level in four years. The Labor Department reported a drop of 6,000 claims to 357,000 for the week ended on March 31st. American employers appear to have taken on more than 700,000 new workers during the first trimester of this year. That kind of growth is not only a far cry from the dire picture still being depicted in various scare-mongering hard money newsletters but is actually the best pace of job creation since 2006. Evidently, America has decided to…postpone its “final decline into oblivion” that we have been assured of, over and over again.
In connection with such fear-mongering, the NY Times’ Nobel-laureate columnist, economist Paul Krugman, reminds us that “for at least three years, right-wing economists, pundits and politicians have been warning that runaway inflation is just around the corner, and they keep being wrong. Do you remember the tirades about “debasing the dollar” around this time last year? Do you remember the scorn heaped on Mr. Bernanke last spring when he argued that the bulge in inflation taking place at the time was just a temporary blip caused by gasoline prices and would soon recede? Well, he was right. At this point, inflation is once again running a bit below the Fed’s self-declared target of 2%.”
By the way, the US dollar is about to be euthanized, if certain Senators have their way. The US dollar bill, that is. Go tell the American public that coins are a better way to go when it comes to the one dollar currency unit. Ninety-seven percent of them say “No way!” to that idea. Try and tell the public that a switch to metallic currency (no, not the gold standard) would save them like…$4.4 billion over a thirty-year period. Nah! See Canada? Nah! This is somewhat of an irony as precisely those who decry the evils of paper money want to save…paper money in the worst way. As usual, there are heavily vested interests on both sides of this heated debate to turn paper into metal. They involve…greeting card companies and copper miners.
And now, we move over to jobs and the economy. Yesterday, Goldman Sachs augmented its estimate of last month’s US non-farm payrolls to 200,000 (from 175,000) on the heels of the jobless claims applications numbers as well as in the wake of a separate ISM employment index. Perhaps more importantly, the periodic survey by the outplacement firm Challenger, Gray & Christmas found that US employers planned to do away with the fewest number of jobs in nearly one year in March; 37,880 positions. That was a 27% decline on a month-to-month basis. It came as not much of a surprise then, that the Bloomberg Consumer Comfort Index resulted in a relatively buoyant -31.4 reading for the period ended on April 1st. That was the best reading in the BCCI since March of 2008.
According to Bloomberg, the reading of Americans’ views on the state of the US economy also rose; its level reached -63.6 and it was similarly the best such figure since March 2008. Several other indicators show that US consumers are coming out of the crisis-induced hibernation they were in for several quarters. Automotive sales ended the first quarter of this year with their best showing in four years, near an annualized level of 14.3 million units.
Household spending in the US in February was at its highest level in seven months. As we previously reported, the S&P 500 Index gained 12% on the quarter, and that climb in value would be the best one since Q1 of 1998. These metrics not only helped reflect and/or boost consumer comfort, but they also constitute good news for President Obama’s re-election bid.
However, despite all of the above, and as Fed Chairman Bernanke previously noted, it is a tad too early to declare that all is prefect with the US economic trends (esp. the jobs picture in his opinion). This morning, the US Labor Department reported that US non-farm employment came in at a weaker than anticipated 120,000 for March while the overall joblessness level in the US on the month was down a tick to 8.2%. The best way to sum up March’s numbers was that there were tandem drops in employment as well as unemployment, albeit the latter was larger than the former.
The weakest jobs growth number in five months made for a veritable bucket of cold water that could have impacted the equity and gold markets quite notably, had they been open for business today. The dollar sank to 79.85 on the trade-weighted index in the wake of the Labor Dept. data, indicating that suddenly at least the idea – if not the certainty – of a fresh round of QE has been resurrected among speculators. There is a lot of work left to be done in all areas (the economy and the markets) apparently.
Quite likely, we would have witnessed a high double-digit to low triple-digit pullback in the Dow, and at least a $20-$30 move to higher levels in gold. Such swings may still be in the cards late Sunday and/or early Monday when various markets reopen for trading. However, just as one month’s worth of statistics do not alter the emergent trend in the US economy, neither will one or two days’ worth of speculative action in the markets change the trends that have been gaining traction of late.
Until such time, we wish you a very pleasant weekend.