Precious metals prices headed lower this morning as the final trading session of the week got underway in New York. Yesterday’s “Fedspectations” turned down a notch as market participants had somewhat bigger news "fish" to fry this morning; specifically, the story out of China that there has been a sharper-than-expected slow-down in that country’s economy. While many commodity bulls and pundits had expected a surprise to the upside (9%+) in Chinese Q1 GDP, the reality – as relayed by Beijing – was that GDP eked out only an 8.1% gain on the quarter – the weakest quarterly expansion rate in three years’ time.
Do also note the fact that with the first trimester’s numbers having been filed, the world’s second-largest economy has now experienced a fifth consecutive quarter of slowing growth. This week’s IMF warning on China and on commodities basically echoed an earlier report by the World Bank “which forecasts a similar [Chinese economic] slowdown, predicting economic growth will gradually slow from an average of 8.6% in 2011-2015 to an average of 5% growth per year in 2026-2030.”
Spot gold opened with a loss of $4.30 at the $1,671 mark on the bid-side, while spot silver dealings opened with a 13-cent decline to the $32.25 level. For an explanation of what he interprets as a bearish market tilt for gold, and why, you might wish to view economist Dennis Gartman’s interview with Kitco’s intrepid reporter, Ms. Daniela Cambone. It is an engrossing clip and it brings up not only chart patterns but certain “official sector” players who did not mind selling some gold into the market at a time when everyone was asserting the opposite.
On the other hand, for quite a sobering view on silver and its trials and tribulations of the past year, do give this Oakshire Financial article a read. Platinum and palladium each shed $5 to start off at the $1,596 and the $646 price points respectively. No changes were reported in rhodium at $1,350 the ounce. The analytical team over at Standard Bank (SA) notes in its daily commodities report that “a platinum price between $1,600 and $1,550 is a level where downside [price risk] is becoming increasingly compressed.”
While the team does not discount further downside beyond this [$1,580 support] level, they believe that price declines below the $1,550 level will be short lived as long as the ZAR doesn’t depreciate substantially against the USD. The Standard Bank analysts also believe that “the risk of the platinum market tightening up via production stoppages in SA this year remains high.” In the background, the US dollar recouped 0.23% of its Thursday losses to climb to the 79.52 mark on the trade-weighted index and crude oil fell 30 cents to be quoted at $103.34 per barrel in NY. Copper players evidently disliked the Chinese GDP number as the orange metal dropped 1.44% this morning.
According to South Africa’s Business Day, “it is far too early to express confidence that global recovery is in sight. But it is becoming a possibility for which all but die-hard gold believers should be making a plan” The story quotes GFMS’ Paul Walker as cautioning that “we are now starting to see some of the inherent difficulties of maintaining momentum in the gold price, as there are signs of economic recovery and an expectation that at some point interest rates will have to move higher.”
Mr. Walker notes that the level of investment demand required to just keep gold prices where they are must be as high as $10-$12 billion per month. In other words, someone had better step up and absorb the surplus manifest in the gold market. He concludes that “we are at an interesting phase in the gold bull rally,” Walker says. “If there was some miracle and the economic news flow became very positive then gold would be in difficulty. But I don’t think we are there yet. There are still legs in this market, but gold is becoming vulnerable. I’ve pointed out before that gold’s run in the past few years is unsustainable. There’s no asset class that only ever sees positive inflows.”