Last week's European bank stress test results-related jitters have quickly given way to (literally) growing fears of another type. The new week began amid apprehensions that global economic growth-while not quite fit for being labeled as heading for a double-dip - is slowing in concert, from the US, to Europe, as well as to China. In fact, the principal preoccupying statistic in coming days will indeed be the figure that reveals the rate of growth of the US economy over the second quarter.
Expectations of robust rates of expansion for the world's largest economy have undergone a relatively speedy shrinkage over recent weeks. What was once thought to be 4% or even 3% as regards US economic growth has now been tempered to forecasts of perhaps only 2.5% - a number about which we will learn more precisely only this Friday. In the meantime, behold the virtual disappearance of the one species that had made some very deep footprints on the market scene over recent months: the euro bear. It seems to have now followed its US cousin into the hibernation cave, following the fact that prediction of the common currency's imminent demise proved to be far off the mark over the past month.
As mentioned, this is not a phenomenon limited only to America. The contraction in expected growth rates encompasses Europe and parts of Asia as well. Best-guess estimates are now for a global growth rate of perhaps only 3.25% for a while, as we go forward. Such slowing comes on the heels of near-5% growth recorded between 2003 and 2008 and has been engendered by anemic consumer patterns in the US, tenuous financial conditions in the eurozone, and the resolve of Chinese leaders to steer the country's economy away from total dependence on manufacturing while also trying to keep runaway and/or inflationary growth patterns in check.
The combination of all of the above is now creating conditions where markets and investors are starting to price in a not-so-hot second half of 2010, even if talk of outright recession is not very loud, just yet. The most oft-tendered label for what's coming is a 'soft patch.' A soft patch that is complete with -for example- an S&P 500 closer to 900 (22% lower) than the current 1100 level, or, lower than $80 per barrel crude oil for another example. US stock index futures were factoring in just such a scenario this morning, following earlier declines in European equities.
Gold prices started the week off on a slightly lower note, held back by a growing lack of investment interest which did not manage to offset decent physical offtake from Indian bargain hunters over the weekend. At the open, spot bullion prices were down $2.60 per ounce, showing a bid quote of $1187.10 as against a $1.29 euro, a $78.34 (down 65 cents) quote for black gold, and an 82.27 indication on the US dollar index.
The yellow metal had dipped to just under $1185.00 per ounce prior to the start of the US-based session. The latest ETF statistics reveal an outflow of more than 12 metric tonnes from the SPDR Gold Trust - the largest such weekly loss in assets under management recorded in six months' time. According to our colleagues over at Standard Bank (SA) the gold market -in technical terms- looks bearish within an $1,181 to $1,174 range; the point where the 100-day MA and long-term support trend lines actually meet.
However, [thus far] in the physical market, buying interest is providing support around this crucial technical range for gold. A break below this range could see gold decline to $1,150. And, yes, price equations notwithstanding, according to the latest tallies courtesy of the World Gold Council, global gold demand is (still) bring ruled by jewellery off-take. More than half of global demand for the yellow metal came from that sector in Q1.
The Standard Bank team adds that: While the physical market is supporting gold, the futures market has seen COMEX non-commercial shorts almost double - to 120 tonnes last week. Non-commercial longs on COMEX declined 62 tonnes - to 758 tonnes. This left the net commercial position on COMEX 639 tonnes long - the lowest level since March this year. Gold has not posted a weekly gain since mid-June, at this point. Here we have a market in search of a fresh crisis.
Who knows, gold might just get such an opportunity, at least if one astrology-based market letter is even halfway correct in predicting that All Hell Breaks Loose (and not just in the stock markets) Come Monday (today). Is your bunker ready? After all, no fewer than five key planets are aligned in a most foreboding way. 2012 starting in 2010 (like, between the 30th and August 3, to be precise). Any takers for that one?
Silver opened with an 8-cent per ounce loss, quoted at $18.04, while platinum showed a $3 per ounce decline with an indication at $1536.00 on the bid side. The exception this morning was palladium, which climbed $10 to open at $472.00 the troy ounce. Rhodium continued unchanged at $2230.00 per ounce. Fresh talk of wage-related labour action in South Africa was making the rounds amid traders this Monday morning.
The South African NUM's next target may be Impala Platinum. The dispute centers on the 2% differential between mineworkers' demands for a 10% hike in wages, versus the 8% rise offered by the firm thus far. Such news appeared to lend support to the noble metals' complex for the moment. Fundamental support for the noble metals remains the overriding positive.
Our analyst colleagues at Standard Bank presently observe that: Platinum and palladium are seeing increased buying support, and we are increasingly confident that these metals' downside risk is dissipating. The team sees a fundamentals-based floor remaining at $1,500 for platinum, and at or near $420 for palladium, while they still prefer palladium to platinum. We prefer rhodium to both, and that's our humble opinion.
Monday's economic calendar shows only new US home sales on the radar and the focus continues to be fix[at]ed upon Friday's GDP statistics, as previously mentioned. However, thin markets have been known to create excitement out of nowhere when it comes to intra-day spikes or dips. Thus, remain vigilant. If nothing else, for TEOTWAWKI. After all, it only comes around, well, every 25,600 years you know...
Two footnotes as we go to press this morning:
So long as the US Mint can keep producing gold and silver coins in an attempt to meet demand for its products, WHO CARES where it secures its coin blanks from? Some people have been up in arms about this non-issue and have suggested that the Mint should only fabricate bullion coins from strictly domestic suppliers. Good luck. For our money, the quality and reliability offered by the Mint's Aussie supplier is just fine, thank you. Consider the alternatives for a moment, if you want a true coin shortage to develop, whilst the raw material needed to make them is quite abundant.
Our favourite image-laden gold-oriented website -GoldBarsWorldwide.com just updated its wonderful pages with two new supplements: one for Kaloti Jewellery Group (UAE) and one for Chinese Tael gold bars (HK) as the Chinese Gold and Silver Exchange Society marks its 100th anniversary. Be sure to visit www.goldbarsworldwide.com for a museum-like experience full of wonder. Your eyes will thank you.
Senior Analyst, Kitco Metals Inc.North America
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