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Good Afternoon,
The price/day countdown we alluded to in last week's closing comments accelerated on this first trading day of March as the precious metals recorded fresh gains across the board. Amid ideal (for them) conditions in the financial arena and on the geopolitical scene, gold, silver and the platinum group metals all rose in concert. This latest surge took place as the US dollar traded at more than $1.53 against the euro and 73.6 on the index, and as crude oil leaped to $103.70 per barrel amid a frenzy of fund money. Geopolitics were showing the world nothing but a mounting heap of potential and actual trouble spots. To wit: Venezuela's Chavez massed tanks on the border with Colombia and kicked up the inflammatory rhetoric a few more notches, violence continued in Gaza, and the list could go on, with Pakistan, Armenia, Kenya, and pending UN Iran sanctions as well as Ahmadinejad's rhetoric heard in Iraq.
New York spot gold reached a record high that was 99% of the way to $1,000 but pulled back later in the day, at last check showing a $9.20 gain, at $983.50 bid. Silver reached a high of $20.66 per ounce before pulling back to $20.07 later in the day. Platinum did not look back and surged to $2233, up $72 per ounce. Palladium had a good day as well, rising $12 to $579.00 per ounce. For more on why gold retreated from the magic figure achievement, and why the greenback sat up in its coffin once again, read below.
The noble metals received a mixed bag of news this morning, as the platinum and palladium deficits were seen as rising in the current year, but also that full power to the mines in S. Africa will be restored as soon as the contingency plans being studied by the government take hold. Some kind of announcement on that front is expected by mid-week. Overall, however, participants were still focused on the latest US economic statistics, leading up to Friday's February employment report. First out of the gate for the month, was the ISM manufacturing index number, showed that, at a 48.3 level, even if some growth is still being recorded, "contraction" remains the operative word to heed thus far. Forbes reports that "the slowdown in manufacturing is mostly due to a decrease in imports and new orders and an increase in prices."
The high prices of commodities like corn, copper, structural steel, and plastic resin are having a direct effect on many manufacturers and thus we got the lowest such reading on the pulse of manufacturing activity in half a decade. Perhaps someone should have a word with the hedge funds that have been pushing the price pedal to the metal(s) across the board... In any case, very few analysts expected that the US economy had done an about-face just yet, despite the very aggressive rate slashing campaign offered up by the Fed since September. The speculative crowd remains firmly fixated on the fulfillment of the four-digit price tag being affixed to a one-ounce chunk of gold. A price that has been talked about for roughly one generation now.
The fly in today's gold market ointment came from Euroland, where, according to Bloomberg, " The dollar rose from a record low against the euro as Luxembourg Prime and Finance Minister Jean-Claude Juncker said he was becoming "increasingly concerned" about the euro's rally. The U.S. currency also recovered after European Central Bank President Jean-Claude Trichet said the U.S. government's strong-dollar policy is "very important." The two Jean-Claudes, they are starting to sound just like their counterpart, Hank Paulson last week, eh? Could actual currency market intervention be far behind? Don't know, but someone is watching all of these developments with more than just a casual spectator kind of attention span...
So, what may be next for markets and corresponding asset values? At least in the opinion of one observer (Bill Donoghue) the sure-fire sign that there is more turmoil to come is seen in the FDIC staffing up of late. Make of it what you will. Others, however, are not so sure this situation is all a one-way street, even if they have not declared themselves as bullish on other alternatives just yet. Here is a sampling of this weekend's punditry, courtesy of Marketwatch and Bloomberg:
First, on the dollar/euro (or dollar/pick-your-currency) situation:
"Currency experts, however, argue that the dollar will remain under pressure at least through the next month or longer. If next Friday's February employment report is as bad as economists are anticipating, argues Joe Francomano, manager of foreign exchange with Erste Bank in New York, the greenback could possibly hit rock bottom at that point.
"You are going to see the momentum of this week carry over as far as dollar weakness goes and culminate next Friday," said Francomano."
But:
"Even the most bearish currency experts agree that the pressure on the dollar should abate some time around the middle of 2008, after the Fed winds down its rate-cutting campaign and as the sluggish U.S. economy starts to perk up."
Furthermore:
"The risk is the euro appreciates too far, choking European sales abroad and pushing up the price of imports to the U.S. The currency has climbed 15 percent against in the past year, rising as high as $1.5239 yesterday."
And finally, Marketwatch's Kevin Kerr on commodities:
"Now no market continues higher forever, eventually all markets correct. The same holds true for the commodities markets and the record buying we are seeing. The best part about trading commodities is that it is as easy to go short (sell) as it is to go long (buy). I am not advocating shorting any of these commodities just yet, but I will say I have taken out my bear hat and am dusting it off. In the meantime there are still good reasons to buy many of these commodities even at these nosebleed levels."
For the moment, none of the commentators are willing to step in front of the commodity bus and hope that someone will apply the brakes. Hulbert's "tepid" Gold Newsletter Sentiment Index at 65.4% could be telling contrarians that gold has remaining price increases in store. Wonder which gold timing newsletters those are. They must not be very popular of late. The week will be dominated by momentum trades and the focus on the economy. The Kitco price boards could make for some ecstatic attendees at the heavily-populates PDAC show in Toronto, even if not yet for those whose brokerage account statements are full of mining shares. Patience.
Let's see what Tuesday brings other than a make/break day for Mrs. Clinton. We have retail sales and consumer confidence (make that lack thereof) coming our way. Watch that dollar. And also, your own.
Happy Trading.
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
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