Recalcitrant Radicals Remain Rabid

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New York gold bullion trading opened $10.00 lower this morning, quoted at $809.50 per ounce. The trade appeared to be thinning out as pre-holiday book-squaring takes over and participants start heading home for their family gatherings. Silver fell 6 cents to $10.22 in anemic trading, while platinum declined $4 to $850.00 and palladium lost $4 as well, to open at $193.00 per ounce.

A mild rally in prices ahead of the holiday cannot be ruled out at this juncture, despite (or perhaps due to) fewer players. Much depends on how much support crude oil and the dollar might lend to bullion for the remainder of the day. The metal was able to turn previous slides to near $800 levels around this week, but has also been thus far unable to get back into and overcome the $845-$875 range - sorely needed in order to allow for further upside progress.

Consumer spending data fell in line with expectations - by 1% that is, and weekly jobless claims declined by 14,000 last week. Still, when adding in the plunge in durable goods orders (they fell by 6.2%) the amalgam of economic stats reveals more of what we have been getting accustomed to, of late. Dow futures already showed some apprehension about the poor data.

Mr. Obama has now appointed Paul Volcker (!) as the head of a special economic advisory board. We take that to mean 'taskforce.' The man's hands are clean of any trace of the current crisis, and his contributions will bear close watching. Oil prices rose by more than $1 on perceptions that interest rate cuts in China might buoy demand. Platinum-group metals on the other hand, took a haircut on Toyota's announcement that production will be cut 20% in at least one of its overseas plant, and that its credit rating is no longer AAA.

Topping the overnight news, was the move by China to slash interest rates by an amount not seen in over a decade. Cognizant of the fact that growth could fall into the 7 percent range (the lowest in two decades), the central bank took out a big blade and shaved 1.08% off its key lending rate. The move comes on the heels of a near-$600 billion stimulus package which was also an offering designed to stave off what appears as the inevitable.

The country's manufacturing contracted by a record amount last month. The outlook for 2009 is not very encouraging when we consider that an 8 percent growth rate is tantamount to a recession. The country needs to support swelling ranks of urban dwellers that have left their farms behind. Sporadic social unrest episodes have been noted in parts of the country, as fired workers took to the streets and raised havoc.

Why is the China news critical? Consider the ANZ Bank analysis of commodities issued just this morning. The word ‘China’ is certainly not absent from the statement:

"Commodity prices may fall a further 10 percent to 15 percent before nearing the end of their decline next year as a faltering world economy stifles demand for raw materials, Australia & New Zealand Banking Group forecast.

Crude oil is the "most vulnerable" and may fall as low as "late $40s" a barrel, Geoff Clear, executive director and head of commodities, said today. Copper may "disappoint" despite tight supply, while zinc and lead may fare better, he said. Commodities markets are heading for the biggest annual drop in more than two decades as the U.S., U.K., Japan, Germany and the 15 European nations that use the euro slip into a recession. Oil has plunged 65 percent since reaching a record $147.27 in July and copper has fallen by half this year.

"Although most of the price declines have already occurred, with funds quickly factoring in the downside, prices could drop further before hitting the bottom of the cycle," Clear said in Seoul. Commodities may "bottom out" in first half of 2009, probably in June, he said. Prices may fall 40 percent on average next year, he said, as demand slows in China, the world’s biggest buyer of base metals including copper, aluminum and nickel.

"Base metals have been downgraded to reflect slowing demand in China, and other major economies moving into recessionary conditions in 2009," Clear said."

None of the above is stopping the perma-bulls from being...permanently bullish on gold's prospects. We go back to Mark Hulbert and Marketwatch in another installment of market sentiment and contrarian overview. Sounds familiar:

"When I last wrote about gold market sentiment, some six weeks ago, I reported that "there's been an excess of bullish sentiment in recent weeks and months, in effect forming the veritable golden slope of hope that makes it easier for the market to decline than advance."