Gold moved further away from the $900 level overnight, just not in the direction many expected it to, given last week's takeoff. Losing nearly 2% in value, the metal eased back to a low of $881.50 per ounce as rumours that the Bundesbank was in the market selling some of its massive bullion holdings to help ease the economic pain swirled around Asian trading rooms. The German central bank denied the stories, but the dip reveals the fact that at least some of the metal's recent buyers are trigger-happy when it comes to locking profits in and may not be reliable passengers on gold latest attempt at a 'moonshot.'
The idea that 'this time, this is IT' has been floated in the wake of so many rallies, that it might become a case of the old full cinema house on fire, or of the wolf-spotting juvenile, eventually. On the other hand, the prospect that some national institutions might start having to look at their rainy-day stash as a viable source of critically lacking crisis medicine is something that this writer has expressed concerns about previously. Many other options have proven futile, while the survey of Davos attendees shows that 8 out of 10 corporate chiefs present are either despondent or non-believers in the efficacy of the global stimuli injections they are witnessing. Underscoring the unmistakable deflationary scent in the air, Super Bowl ticket resale prices fell sharply from last year.
Bullion opened the mid-week NY session with a 1.1% drop, off $10 at $877.70 per ounce as both the Davos and the Fed meeting give participants plenty of sources for speculation to remain alive and well. It should be noted however, that gold fell in concert with the dollar for a second day now, raising questions about the longevity of the parting of the ways we witnessed last week. Silver was down a nickel, opening at just under the $12 mark, while platinum added a modest $3 to start at $948 and palladium drifted $1 lower, to $188 an ounce.
The support observed during yesterday's profit-taking still appears to remain in place for bullion, but some money has started finding its way into battered equities, especially following the good bank / bad bank plan gaining traction out there. The plan could not come sooner, as banks appear to be asking for Bailout Phase II and as Wells Fargo swung to a loss in the wake its Wachovia acquisition. Fed decision and stimulus package voting are on tap for the day, and should keep the specs fairly active.
Let us take a look at the prospects for some of the 'lesser' metals you can follow on the www.kitcometals.com page on any given day. Credit to RBC and Reuters for publication and distribution of the recent base metals price survey. This particular poll looks like a heavily greased one to us:
Prices could definitely continue to fall in the first half of this year, Catherine Virga, an analyst at CPM Group, said. In the first quarter we'll see the bottom to many of these metals (and) from there I don't see them staging a very strong recovery. She added there was no good reason why metals should not continue to slide in the short term. The economic data that is being released continues to show that leading indicators point to further decline in industrial production.
Prices of copper, used in power and construction, are expected to average $3,417 a tonne this year, compared with the average price of $6,959 per tonne in 2008. Copper production cutbacks have been very small with prices still trading above operating costs for most of the industry, Gayle Berry, an analyst at Barclays Capital, said. Aluminium is expected to average $1,605 in 2009 versus $2,576 last year. London Metal Exchange inventories of the metal are at record levels at over 2.7 million tonnes, and are seen rising. The metal, used in transport and packaging, has come under pressure from falling car sales. It was last at around $1,290. The pace and scale of the deterioration in (aluminium) demand so far is startling,
Berry said. Even once the macro outlook begins to improve, excess capacity is likely to keep a cap on price gains. The survey also showed nickel averaging at $11,023 from $21,058 the previous year, with lead at $1,146 from $2,088 and zinc at $1,213 from $1,880. Tin was seen averaging at $12,000 from $18,448 in 2008. Base metal demand will be subdued over the next two years and will result in metal surpluses, said Justin Lennon, an analyst at Mitsui Bussan.
The picture starts to improve in 2010 compared with 2009. The packages that various governments have put together to stimulate their battered economies should be underway and are expected to help support industrial metal demand from 2010, after prices bottom out by mid-to-late 2009. The average copper forecast for 2010 stands at $4,299 a tonne, and aluminium at $1,951. A fiscal stimulus led recovery in the second half of 2009 will benefit copper due to its high exposure to construction and relatively low inventory levels, Dan Smith, an analyst at Standard Chartered Bank, said.
We expect government stimulus packages and decisive monetary action to stabilise growth prospects and restore normal functioning in the credit markets. Both copper and aluminium have plunged about 60 percent from record highs of $8,940 and $3,380 respectively in July last year. Copper hit a four-year low of $2,825 in late 2008, and aluminium touched its lowest level since October 2002 at $1,316.50 last week. 2010 is the earliest we expect there to be a pick-up in demand for the base metal sector, said Charles Cooper, an analyst at Evolution Securities.
There will be bounces here and there but we won't see a turnaround in the global economy until next year. The survey showed that nickel will average at $13,228 in 2010, lead at $1,323, zinc at $1,441 and tin at $13,500.
The pushing back of the recovery timetable appears in sync with the views of the heads of some of the very firms involved in the sourcing, production, and usage of the above-mentioned base metals, as they gather in Davos.
Stay tuned for Davos/Fed/House/Dow/and FDIC news items.