Thursday was a day of gains in stocks, the dollar, oil, and precious metals. Gold prices started higher overnight, and continued to climb in New York, maintaining a 1.25% gain for most of the session. We could be in for another test of the $930 area of resistance before Friday's trading is finished. A combination of safe-have and inflation hedge buying has supported values in and around $900 of late, despite sharply falling fabrication demand across key centers.
The latest demand domino to fall was Dubai, which reported a 60% slump in demand last month. Gold's major gateways to India are closing one after the other, and local demand appears to be no better despite aggressive promotions and bargain-basement pricing. The culprit remains the high price of the basic ingredient in all of those unsold items. That, and falling property prices, job rosters, consumer confidence, and incomes.
The gold supply-demand and resulting price equation now shifts towards determining whether the investment offtake can successfully keep prices aloft at, or near current levels. In the opinion of at least one alleged member of the 'evil cartel - Goldman Sachs - gold is set to achieve a second period (duration not given) of four-digit prices within 90 days. Depending on which camp you are in, such a forecast is either a sly call to lure the sheeple into a market that they [GS and its sinister cronies] will then heavily sell into, or a capitulation of some kind. We say, neither.
But, that's just us. Senior metals analysts are now being cloned at the rate of about two per the minute, and they are rushing to attach all kinds of wild price tags to bullion. Complete with a guarantee, to boot. Curiously, most of them totally missed the left-field surprise in March of 2008. Redemption can never come too late. In a replay of the 1980 scene, radio airwaves are being deluged with survivalist-infused commercials for gold coming from practically any dealer in possession of an ad budget. As in 1980, their ads are competing head-to-head with the loud bullhorns of scrap dealers standing as so many advertising sandwich men on 47th Street, clamoring for your gold. Grandma's bedroom drawers are being heavily rifled through, from coast to coast and from continent to continent.
New York spot dealings saw a high of $925.80 during the day, and were last seen steadying near $917 per ounce, not very far from their opening level. Silver prices rose 35 cents on the day, and reached $12.89 per ounce. Platinum was able to add $14 per ounce, climbing to $979 and palladium rose $6 to the $201 per ounce mark. US initial unemployment numbers contributed to the surge in metals, as did major jitters surrounding the fate of Bank of America (or, is it the Federal Bank of America sometime soon?) and its sub-$4 per share stock price. Dollar selling did not materialize today, despite the bad jobs numbers and banking rumours. The greenback climbed to a hair under 86 on the index, given the continuing quest for liquidity, safety, and risk aversion.
Exhibiting stubborn doggedness, the ECB left rates unchanged at 2% this morning. Analysts were almost unanimous in their post-decision comments, characterizing the lack of accommodation as a major disconnect on the part of the central bank as regards European economic reality. The euro traded at a two-month low following the announcement, as traders saw future economic damage offsetting any strength being conferred upon the common currency by the maintenance of the highest rates among the G-7.
Across the Channel, the BoE wasted no time in slashing its rate to 1%, the lowest in...let's see...315 years? The race towards a nearly global zero interest rate environment appears to remain on track, despite reluctant runners such as the ECB. One of its Council members suggested that one ought not perceive a zero or near zero rate situation as a reflection of a central bank having run out of options or of its monetary policy having become ineffective.
President Obama stressed the urgency of the passage of his stimulus plan by painting a US socioeconomic picture containing the word catastrophe in the absence of such an approval. This leaves the US Senate with little choice but to sign off on the plan, lest it risks being the subject of subsequent finger-pointing or worse.
The catastrophe in question has its origins in the era of easy credit that saturated the American real estate scene for years, probably as a red-herring that almost appeared intended to keep the minds of many focused on anything but an unnecessary war. Now, the boomerang is felling those who doled out good money, and causing much pain. The IMF certainly thinks so, when it puts the banking sector under the slide glass for a closer look:
There is no end yet to the global financial crisis, the IMF said in its latest report released Thursday. Policy actions to resolve the financial crisis have been broad in scope, but have not yet achieved a decisive breakthrough, the IMF said. It called for more aggressive and concerted policy actions. Countries have made a good start on fiscal measures to battle the downturn, but toxic assets must be removed from bank balance sheets.
If the financial sector is not restored to health, an enduring recovery will not be possible, the IMF said. The report was prepared for a meeting of G20 deputies in London last weekend but only released five days later. The IMF straddled the fence on Washington's debate over how to proceed with bank rescues, saying putting the toxic assets in a bad bank or ring-fencing the assets with government guarantees were both good ideas.
Short, but not sweet. Very bitter, in fact. As is the medicine to cure such an ailment.