Once again, Europe and the situation it faces, became the principal focus for the financial markets as the new trading week commenced. While Italy and Spain have attempted to downplay the possibility that they will need to tap into emergency funds, there remains a good dose of friction and uncertainty manifest among politicians and market officials alike.
Italy’ PM Mario Monti told German magazine Der Spiegel that “the tensions that have accompanied the euro zone in the past years are already showing signs of a psychological dissolution of Europe.” French President Hollande is apparently nudging both Mr. Monti and Spain’s Mr. Rajoy to give in and request aid in order to ease the funding pains that have roiled the markets and recently brought the euro to very near the $1.20 level against the US dollar.
After reaching the highest level against the greenback since Independence Day, the common currency slipped lower this morning as currency traders scaled back on their optimism for a speedy resolution to the crisis and for concrete action by the ECB (read: open bond-buying). The value zone above the $1.24 mark is seen by players as a good level to add to short position betting against the common currency. The US dollar remained above 82.15 on the trade-weighted index this morning.
European woes notwithstanding, stocks and commodities specs took the one part of the Friday US employment report that could be interpreted as raising the odds of Fed accommodation and ran with it to the upside. Ahead of that announcement on jobs, it was noted that, for example, gold specs hiked their net long positioning by almost 84 tonnes in the hope that the Fed would ease last Wednesday and that so would the ECB last Thursday. Neither central bank did that.
Market watchers note that the one-tenth percent bump in the overall unemployment rate is not a catalyst for a shift in monetary policy and that actively ignoring the better-than-expected number of US jobs that were created only underscores the fact that market players are not just hoping for QE gestures from the FOMC, but are effectively demanding it. Certainly, the fact that unemployment ticked up to 8.3% (and there are all kinds of seasonal variables to take into account when parsing the data) does not indicate that the US is about to fall into a recession once more.
At the opening bell in New York this morning gold hung on to its gains and traded near $1,605 while silver remained flat-to-lower, near $27.70 per ounce. Thomson Reuters’ “Inside Metals” report notes that “gold remains trapped in no man’s land between hopes it will rally if Western central banks are forced to further ease monetary conditions and the reality that physical demand in Asia remains tepid.” Morgan Stanley downgraded its gold price outlook for Q3 by 11% this morning, to $1,650 per ounce.
MS also lowered its Q4 projections for the yellow metal by 13% to $1,750 the ounce. The firm opines that “With an uninspiring gold price performance so far this quarter, the risk is that this trend is reinforced by these developments. While we are still forecasting moderately higher gold prices through the fourth quarter of 2013, risks to this price profile appear to be increasing.” Platinum fell $9 to $1,393 while palladium dropped $6 to $573 per ounce. Rhodium advanced $20 to $1,170 per ounce on the bid.
Speaking of would-be precious metals rallies – one in particular, the UK Telegraph as well as the Financial Times report that a four-year investigation into possible manipulation of the silver market looks likely to be dropped by U.S. regulators. Sources cited three people familiar with the situation as saying the regulator failed to find enough evidence to support a legal case. The CFTC’s decision, if it is true, will take huge legal pressures off of JP Morgan and HSBC, both of which were the main focus of the legal complaint that sparked the regulatory probe following accusations that alleged conspiracy and manipulation of silver futures and options traded in New York.
The CFTC’s dropping of the aforementioned investigation will also likely disappoint a huge number of silver bugs whose hopes for triple-digit silver prices resided in the ill-placed faith that the white metal’s market is rigged, and that if a conspiracy to suppress values is proven then silver will finally lift off towards the heavens. The only heavens-related success we know of this morning was the Mars landing of the Curiosity Rover. Presumably, all that is left to do now is to lump the CFTC into the category of “un-indicted co-conspirator” and continue to produce newsletter issues that prove the evidently…un-provable.
The precious metals conspiracy camp is possibly about to be dealt another blow by the near-completion of the audit (yes, audit) of the USA’s gold being held at the NY Fed. The Treasury Department has been counting and drilling and drilling and counting the thousands of bullion ingots and it could produce its report on the tally by year’s end. One of the most surprising statements that has been made in connection with this audit comes from one source that so fervently clamored for the procedure to take place to begin with: Rep. Ron Paul. The soon-to-retire politician actually suggested that Uncle Sam might wish to sell its huge reserve of the yellow metal if in fact it serves no useful purpose.
However, that which has been called the equivalent of the “birther movement” in gold has been making the rounds among the bugs more often than any of the allegations that President Obama is not American and it has theorized that America’s gold is AWOL or fake, or both. Previous audits in Ft. Knox, Ky.; West Point, N.Y. and Denver failed to extinguish the wild stories about the 8,100+ tonne stash of gold that the US owns. Soon, something will be proven and it should finally lay such fairytales to rest. Maybe.
Something that, on the other hand is quite proven, is the fact that the pain in the platinum niche is the result of a combination of high mining costs and virtually non-existent marketing efforts. A detailed article in Mining Weekly cites Northam Platinum consultant Bernard van Rooyen as believing that while the current price of the noble metal is “not a bad price in terms of cyclicality” there is a problem on the cost-of-production side of the metal’s equation.
Mr. van Rooyen also believes that if current conditions persist, some platinum miners will be forced out of business. Some 60 to 70 percent of the mines currently digging for platinum are not covering their costs properly. Platinum recently fell to a $200+ discount to gold – the steepest in nearly eight months. Mr. van Rooyen thinks that the platinum’s prospects are ultimately uni-directional since “Either the price goes up because demand increases or the price goes up because there won’t be any supply if it doesn’t. The problem is that there is an awful lot of pain in the interim.” We continue to believe that investors in platinum and palladium will be rewarded with percentage gains that will far outstrip gold and silver in the event of bull moves to the upside.