Wisdom of Words

• Print
• E-Mail

Good Afternoon,

Gold's 2009 start ran into a bit of difficulty as a fresh rise in the US dollar created less than auspicious conditions for continued advances towards the $900 level. The greenback rang in the new year with an advance against the euro, which retreated following an 11-year low reading in the area's manufacturing activity. Moreover, the single currency faces the start of its second decade of life beset with challenges.

A multi-decade high in French unemployment and output slumps in Italy and Germany have raised the odds that some Euro politicians will make the currency their prime target for scapegoating. The US released its own December manufacturing activity data today, and the numbers revealed the grim reality: a rate of shrinkage not seen since 1980. Demand for furniture, appliances, and automobiles fell to the lowest post-war level since 1948.

Very little was tendered in the way of explanations as to what motivated the Dow to gain more than 240 point today, on the back of such poor econometrics. Some say that the anticipation of stimulus packages yet to be delivered by the new President buoyed equities, others pointed to GM's cash infusion as the reason for the bounce. Oil reversed its earlier declines as well, and ended with a gain of $1.58 to $46.18 per barrel on the day.

In Asia, Singapore's recession deepened as well, with a negative 2% growth rate being forecast for 2009 ( for a third consecutive year). India lowered interest rates for a fourth time as inflation turned to disinflation. Unsurprisingly, oil prices dove by over $3 and traded at $41.50 on such glum GDP news. In the interim, the 'gas war' between Russia and the Ukraine continued solutionless and helped the energy complex, while the Israeli strikes against Hamas entered their seventh day and a ground invasion appeared nearer.

New York spot gold dealings opened with a loss of $10, at just under $871 per ounce as the US dollar climbed higher on the trade-weighted index (now at 81.88), but later narrowed that decline to as little as $4.00 to trade at $877 at last check. climbing crude prices made matters easier, as did pre-weekend book-squaring. The US has (wisely) indicated that it intends to refill its Strategic Petroleum Reserve by buying about 12 million barrels of black gold. Open interest rose by 6203 contracts. Silver's initial 25-cent fall to $11.07 turned into a 20-cent gain in the afternoon (last quote was $11.52), while platinum turned a $5 loss at the open into a $17 gain late in the day. The metal was quoted at $945 per ounce. Palladium was ahead by $5, starting at $190 per ounce. Thank you, Uncle Sam. Long live the National Automobile Works.

After a year like the one that just ended, nothing should surprise anyone, anymore. Especially not the news that there may be more Madoff-style Ponzi schemes coming to the light of day in the near future. And, if UBS is right, we better not let our guard down. They say a few more bombshells could very well drop – but here's the twist – not all of them are bad! That's right there could be some upside surprises on the horizon.

Here's what UBS told CNBC just before Christmas, could be "Some [of the] Surprises for 2009".

1) Oil prices fall below $20 per barrel.

2) The dollar falls to new lifetime lows.

3) Global growth is negative for 2009.

4) Gold goes to $300.

5) Corporate default rates don't rise significantly.

"These things may seem unlikely but this year has shown us that unlikely things can happen," says Jeff Palma, head of global equity strategy at UBS Investment Research." Of course these surprises are not forecasts. They're more like plausible "what if" situations. But, it's worth noting last year UBS put together the same kind of list and nearly half came true. At the other end of the prediction spectrum, lies India's Commodity Online - it feels that lower supply and higher demand will push gold to $2,000 per ounce. Standard Chartered Plc sees the metal as averaging $985 per ounce this year, and trading closer to $1K by mid-year. And the forecasts keep on rolling in...