Indecision turned into selling decisions in the gold markets overnight. Following perceptions of the G-20 being on track to actually have gotten some critical work done, global stock markets and commodity markets made progress of the optimistic kind. Gold however, had to mind its worry-barometer attributes and took a course towards the $900 level as the global gloom appeared to lift somewhat. Anticipation of concrete measures and proposals being manifest in this afternoon's G-20 communique drove overnight values to a low of $907 per ounce (a $20 loss) even as the dollar lost ground (to just under 85 on the index) and oil rose by $2.50 (to $50.90) per barrel. One such item of interest appears to be the doubling or even trebling of the IMF's quarter trillion-dollar war chest. How? Well, there are ways...
One of them, fresh off the electronic presses:
Britain wants an agreement from the Group of 20 nations to improve the way the International Monetary Fund uses its cash, including freeing up money for lending by selling gold reserves, International Development Secretary Douglas Alexander said. “Among the measures we hope we can affect is the commitment to provide more and better funds for the IMF and World Bank including by using profits from the sale of IMF gold reserves,” Alexander said at the Group of 20 nations summit in London today. “There have already been conversations with the South Africans and others in terms of whether the gold market can bear a phased and appropriate sale in a way that makes sense commercially.”
The IMF’s board approved a proposal in April 2008 to sell 403.3 tons of bullion as part of a plan to close the Washington- based lender’s annual deficit. The Obama administration soon will push Congress for legislation that allows the IMF to “mobilize” its stockpile of gold to boost its funds, U.S. Treasury Secretary Timothy Geithner said on March 11. A decision to sell gold requires the backing of 85 percent of the IMF’s executive board, and the board representative from the U.S. needs the approval of Congress to vote in favor of any sales, according to the organization’s Web site.
“I wouldn’t expect there to be an immediate decision out of today’s decision to sell gold tomorrow on behalf of the IMF,” Alexander said. “On the other hand, there is recognition from all parts of the international financial system that we are risking an unprecedented crisis which risks impoverishing many hundreds of millions more people around the world.”
The Nikkei index certainly gave its nod to the perception that the global systemic shock may be drawing to a close any day now; it rallied nearly 370 points. The Hang Seng index piled on a 1,000 point gain. Commodity currencies shone brightly. Emerging market stock indices also experienced a spring in their step. Good thing that the London statement comes today; at least the pessimists won't be pointing to its release date with a knowing gesture. Not the same gesture that these gentlemen below are displaying, to be sure. It involves the use of another digit. Give the guys a break. In fact, they have each had only eleven minutes per capita to save the world. In that context, they are either super-human, or there is a staff of hundreds actually doing the grunt work behind the scenes.
We call it sour grapes. Armageddon did not materialize and it has a certain contingent of the financial media pundits very disappointed. Because, you know, we need to have closure that only a good old fashioned TEOTWAWKI can engender. We also say, go ahead and pout. It's your party, and you can cry if you want to. Someone whose brows are still furrowed but for different (deflationary) reasons is Mr. Prechter - he of Elliott Wave. The Prechterian vision still calls for sub $20 oil and a 3 to 4 K Dow. Let's not mention his gold targets. There are women and children in the room.
Hey, folks, things are looking UP! Really!
We look for tests of the $900 and sub-$900 level as the logical targets at this point, following the derailment of what we expected to be a buoyant week for gold prices. New York bullion prices started Thursday's session with declines across the board. Gold was off by $14 at $913.50 per ounce, silver fell 14 cents to $12.89 an ounce, and platinum rose a tiny $2 to $1137 per ounce. Palladium lost $1 to start at $218 and rhodium was basically steady at just above the $1K mark. This morning's econ news concerns that which was first apparent in yesterday's jobless claims numbers; namely, that the continuing jobless claims figures are fast approaching 5.75 million in the US.
As the euro got a boost from a smaller than expected ECB rate accommodation this morning, the dollar slid but gold was not in a mood to capitalize on such a decline. Safe-haven demand for the greenback and for gold appears to be following the opposite path of the demand for equities, battered industries, and various commodities that are seen as benefiting from a recovery in the global economy. No calendar dates attached, mind you, but there is a palpable sense of this spring being the bottom, or the first rung above it, as concerns the crisis. Hey, even the Confiker worm failed to show up and spoil the world's computing power yesterday.
We warned last summer about the emerging trend to regulate in the wake of the crisis. It's a natural (over)reaction. Some kids get a whole new set of tough love rules imposed upon them after having misbehaved enough to place their family at risk. Some spec funds saw this coming and bolted from various positions well ahead of the period when the quest for liquidity was cited as the reason for the Big Sell that came in the fall. Now, news of financial globo-cops is starting to make its way into public consciousness. Madoff may have been the straw, but this was coming down the tracks with lights ablaze and horns blaring anyway. Little titles like 100 UBS clients under US tax authority scrutiny and Shutting down tax havens are seeping into the headlines. More to come. For now, here is a quick Marketwatch/Bill Watts snapshot of where this stands as the G-20 prepare to say Bon Voyage to each other:
Leaders of the Group of 20 nations are likely to agree Thursday to impose sanctions against countries that don't comply with a crackdown on bank secrecy rules, Stephen Timms, financial secretary to the British Treasury, told reporters at the G20 summit. Leaders are also likely to agree to publish a list of countries that don't comply. Ongoing discussions center around when that list would be published, he said. Germany and France have demanded that the G20 summit produce action against tax havens.
Leaders of the world's most powerful wealthy and emerging nations were working toward an agreement to at least double the International Monetary Fund's rescue capabilities and to sanction countries that fail to comply with a crackdown on bank secrecy rules, British officials said Thursday. Progress on those issues comes as disputes over the need for additional fiscal stimulus spending and measures to strengthen international oversight of the financial sector threatened to dominate the crisis summit of Group of 20 leaders.
Chancellor of the Exchequer Alistair Darling, Britain's finance minister, said there would be concrete action on the issue of tax havens by the end of the day.
The final G20 statement to be issued later Thursday is likely to include sanctions against countries that don't meet new, international standards on banking transparency, said Stephen Timms, a deputy to Darling.
The leaders would likely agree to publish a list of non-compliant countries, he said. Discussions now are centered on the timing of the publication of such a list.
A tough crackdown on tax havens is a key demand of French President Nicolas Sarkozy and German Finance Minister Angela Merkel. Leaders are also following through on a pledge by G20 finance ministers earlier this month to substantially increase funding resources for the IMF, Timms said. Officials were on track to at least double the International Monetary Fund's emergency resources to $500 billion, Timms said. Discussions are taking place about exactly what that level would be.
A disappointing G20 meeting outcome, which nobody hopes for, should favor the U.S. dollar, as investors are likely to bet on a resumption of risk aversion: expect, thus, equity markets and commodity currencies to return under siege, dragging [the euro] lower versus the dollar, wrote strategists Luca Cazzulani and Roberto Mialich of UniCredit MIB in Milan.
Call us fools, but the dollar could lose some of the ground it has gained since last summer. The problem is, so could gold, as regards the ground it has gained since lat last year.
Happy Communique Reading
Meanwhile, in Pyongyang: 10.....9.....8......7....