Holding patterns that developed earlier in the trading week remained manifest for the past several sessions as well. Most precious metals market participants (as well as those in several other asset markets) appear to be holding their collective breath in anticipation of today’s speech by Fed Chairman Bernanke, the upcoming FOMC meeting, and the eventual German court ruling of the status of funding of the eurozone’s ESM. Yesterday, the US dollar turned higher in the wake of market chatter that alluded to the IMF working on a “financial assistance” package for Spain. The IMF was also said to hint that the ECB still has room to maneuver (read: ease and take the euro lower as such) in coming weeks/months.
Gold prices fell for a third day on Thursday as such uncertainties and themes sidelined any aggressive moves by either camp duking it out in the markets. Spot prices finished near $1,655 and near $30.50 in gold and silver and near $1,500 and $615 for platinum and palladium bids. News from South Africa continues to be of the troubling variety. The country’s Justice Minister wants to know why the National Prosecuting Authority has used a law that belongs to the apartheid era to charge 270 striking platinum mine workers with the murder of 34 fellow miners who were actually shot by police forces. Such “common purpose” charges have not been levied upon individuals since 1994 by the NPA.
The metals complex opened higher this morning as the pre-long weekend book-squaring ritual got underway and as players awaited Mr. Bernanke’s words from Jackson Hole. Gold advanced $5 to $1,660 while silver rose 20 cents to $30.70 per ounce. Gold market watchers such as Global Hunter Securities’ MD Jeffrey Wright offered a bit of level-headed commentary ahead of Mr. Bernanke’s speech today.
Mr. Wright noted that he is "feeling rather cautious going into tomorrow’s Jackson Hole speech by Fed Chairman Ben Bernanke. Gold has gone up about $50 in past 30 days; we see a bias to the downside unless there is a clear signal and movement for QE3. The run-up in gold is predicated in anticipation of continued easing; without it the afterthought will be 'people bought gold all the way up and then sold sharply/quickly on the news.'"
Platinum gained $12 rising to $1,512 and palladium climbed $5 to $619 per ounce. Rhodium showed no change at $1,150 per ounce on the bid. Background market indications had the barrel of crude up 67 cents at $95.29 and copper up 0.35%. Stock index futures were pointing to a higher opening after the Dow closed but 0.71 points above the 13,000 level on Thursday.
Meanwhile, over on the physical side of the gold market, as presumed before, India’s QII gold imports did show a significant tonnage decline. The planet’s biggest gold consuming nation imported 18.4% less gold in the second trimester owing to a combination of factors, the most notable of which would be the record or near-record local gold price, and the Reserve Bank of India’s overt attempts at curbing Indian appetites for the yellow metal. Large-scale gold intake has been a hitherto sizeable contributor to the widening of India’s current account deficit.
Towards the end of the last quarter, it can be assumed that the quite poor start to the annual monsoons has also been a tempering factor to the would-be buyer’s degree of willingness to buy the precious metal as heavily as in previous years. India’s government reported this morning that the economy in that country grew at a disappointing 5.5% in QII (versus 8% one year ago). Manufacturing activity ground to a virtual halt, growing by only 0.2% versus 7.3% last year during the same period.
Meanwhile, India’s food inflation accelerated owing to the aforementioned weak monsoon season. With such background conditions having developed, it will be well worth watching the patterns of upcoming seasonally-related gold demand from India. It is already known that April-to-June’s wedding season failed to spark demand for gold at anywhere close to historical levels.
The US dollar was sharply lower on the index this morning, trading at an indicated 81.12 and it appeared to be a victim of Fedspectations while not being able to benefit from rumors related to the possible resignation of German Bundesbank chief Jens Weidmann. It appears that Mr. Weidmann is so unhappy with the possibility of a bond-buying plan that he has already thought about quitting his job several times recently.
Talk of post-Jackson Hole and post-FOMC meeting mega-rallies continues to swirl in the newsletter niche and in the gold bug forums. Almost every type of news – even the implausible kind, such as the GOP’s crackpot idea of bringing back the gold standard in the USA – has generated tomes of uber-bullish writing about gold’s near-future price prospects. After all, who needs Bernanke’s QE package if we can get $10K gold courtesy of the US government and a “simple” Constitutional amendment? Fortunately, there are still sources of balanced and well-researched information on that now hot topic available to the investing public; the most recent one being the excellent CPM Group analysis to be found here.
The bullish sentiment’s buildup has been quite notable and, once again, much faith has been placed in the idea that, perhaps this time around, following several previous occasions for disappointment, the Fed will finally “give” the markets something tangible and make the commodity specs happy in some way. This, despite the most recent reading on US GDP, which, at 1.7% during the second quarter, reduces the odds that the Fed will feel compelled to once again expand its balance sheet in an automatic manner.