Diverging price action was on tap during overnight trading in Asia and Europe. The principal background catalyst was the US dollar's advance against the euro. The greenback rose on account of the fact that some traders viewed the decline recorded over the past 36 hours as significantly overdone, and based on the news that EU leadership would effectively bail hard-hit Eastern European countries out with a doubling of available credit lines to nearly $70 billion. Something else that will also double if the EU and the US have their way: the budget of the IMF - to $500 billion. Just call it a coordinated global stimulus of half a trillion, and pray it's enough. Oh, and find the money first.
The effects of the dollar's somewhat mild (within the context of its recent slide) recovery were immediate, albeit equally tentative as well. Gold prices fell to under $950 after probing as high as near $970 overnight, crude oil sank by $1 to $50.61 per barrel, and European and Asian stocks turned mixed
New York spot gold opened with an $11.50 loss this morning, quoted at $947.50 per ounce as the trade prepared to close out the week's books. At this point, while it is too early to tell what level the settlement will come in at, bullion could record a 1% gain on the week. But, what a week it was, punctuated by a nearly $100 trading range. Don't know what the logbooks will show for a final tally, but it is sure to be a mixed set of results, at best. The trade remains dollar-centric as most notions that gold and the dollar can coexist in some kind of symbiotic relationship have either been mothballed or shredded.
Gold continues to be defined (and perhaps confined) by the dynamic of investment demand versus jewellery offtake verso scrap supplies. Mine production and central banks have - for the moment- become marginalized factors in the overall equation. The IMF's funding situation adds another dimension to the story, but not as urgent a one as the collapse of bauble demand in India as well as worldwide. Analysts project Indian gold demand to possibly fall to under 400 tonnes this year -make that to a potential 100 tonnes (!)-, after having already contracted by 45% vis a vis 2007, last year.
Anything under 400 tonnes would amount to the worst demand from the largest gold consumer on the planet, in this decade. Adding to the fabrication demand problem, the GFMS finding that the global gold market's 600 tonne annual jewellery demand has fallen to levels last seen in 1989 - about 2100 tonnes. The credit crunch and resultant decline in economic and consumer activity have severely curtailed the acquisition of decorative gold products. Scrap supplies, on the other hand are choking refiners and booking them months in advance. Walk down 47th Street and behold the dozens of billboard sandwich-men shouting Sell Your Gold Here! Sell Your Old Gold Now!
The prognosis for next year is no brighter. We remain doubtful that investment demand- as robust as it has been - can fully overcome the cratering of such substantial offtake channels. At the very least, it might make for difficulties in prices advancing substantially at this time, and in the maintenance of high prices once the immediate economic threat abates. To think otherwise, is to try to reinvent the structure and internal dynamics of the gold market.
Silver fell 8 cents to start at $13.49 per ounce, while platinum lost $6 to $1117 an ounce. Palladium showed no movement, opening at $204.00 per ounce. The automotive sector got a bit of good news as the TALF program launched with a near $5 billion injection intended to help fund car loans. Meanwhile, GM's CEO touted that the firm is going to do nothing short of reinventing itself, following its de facto demise. So,.... that's what it took! Wow. Brilliant leadership. Not. Just more of the same -too little/ too late.
Buick's climb to the top of the automotive reliability ladder was unnoticed. At this point, many a US household is facing the very real prospect of one job/ one car and is but one or two paycheques away from it own version of Chapter 11. Gimme four wheels for $10K and make sure I can pay it off over 10 years' time. Well, at least Hyundai is with it; it promises to take care of your payments if/when you lose your job. For a while, anyway.
Lest doubts remain about the general direction of the global economy, the latest projections from the IMF should lay any lingering ones to permanent rest:
The world economy is set to contract for the first time in 60 years, as the deepening financial crisis would lead to the global GDP shrinking by up to 1 per cent in 2009, the IMF warned on Thursday.
In its latest assessment of the global economy published on Thursday, the International Monetary Fund said that more sustained, concerted policy actions (was) needed to revive growth in the economy across the world, as trade volumes have shrunk rapidly despite large stimulus packages announced by advanced economies and several emerging markets.
... Production and employment data suggest that global activity continues to contract in the first quarter of 2009... Global activity is now projected to contract by half to one per cent in 2009 on an annual average basis the first such fall in 60 years, the IMF said. The assessment is part of IMF's analysis provided to the Group of Twenty (G-20) industrialised and emerging market economies in their meeting at London.
However, the global growth is still forecast to stage a modest recovery next year, conditional on comprehensive policy steps to stabilise financial conditions, sizeable fiscal support, a gradual improvement in credit conditions, a bottoming of the U.S. housing market, and the cushioning effect from sharply lower oil and other major commodity prices.
The IMF said that the world GDP would shrink by 0.5-1.0 per cent in 2009, before growing by 1-5-2.5 per cent in 2010. The IMF has forecast a decline of 3.0-3.5 per cent in the GDP of developed economies in 2009 and a growth of 0.0-0.5 per cent in 2010. The US could shrink by 2.6 per cent, while Japan and Eurozone would witness deeper plunge of 5.8 per cent and 3.2 per cent respectively.
For emerging and developing economies, the IMF has forecast 1-5-2.5 per cent growth in 2009, followed by 3.5-4.5 per cent growth in 2010. The IMF said that advanced economies would suffer deep recessions in 2009, while major economies in the Group of Seven are expected to experience the sharpest contraction as a group in the post-war period.
Turning around global growth will depend critically on more concerted policy actions to stabilise financial conditions as well as sustained strong policy support to bolster demand, the IMF said. The IMF has stressed the need for countries to implement large fiscal stimulus packages to anchor crisis-related spending in the context of a credible medium-term fiscal framework so that deficits do not get out of hand. At the G-20 meet, the financial heads from major developed and emerging economies pledged a sustained effort to end the global recession and to cleanse banks of toxic assets.
Dollar-watch and profit-taking remain on the agenda as the week draws to a close. Seems like old times, again.