Gold was in positive territory into the first hour of New York trading on Monday, but then fell off a cliff, dropping almost $30 through the rest of the Comex, before rallying on the Globex to finish at $921.50/oz., down $16.90. Overnight, gold has dropped off.
Platinum peaked in Hong Kong, then dropped steadily until mid-morning, before it turned around and clawed back by about $20 to end at $1059/oz., down $11. Overnight, platinum has slipped lower.
Silver climbed from Hong Kong to mid-morning, peaking near $13.40, but then it too completely hit the skids, falling sharply by about 60 cents before a late mini-rally took it back to close at $12.94/oz., down 39 cents. Overnight, silver is trending lower. ( Click here for charts )
The precious metals failed to get any kind of boost as the new week began, and were unable to build on the gains of late last week.
Among the usual suspects, rising oil prices might have been expected to buoy gold, but there was no support to be had from that quarter in the face of a dollar rally that seems incapable of being choked off.
Weakness in equities may be partly to blame. “Given the likely need for cash due to equity market volatility it is likely that gold will run into further pockets of long liquidation in the coming sessions,” wrote James Moore, of TheBullionDesk.com .
At the same time, though, Moore said that, “Given the continued weakness of equities, investors may again look towards safe-haven asset types, particularly gold,” and he called for the metal to set a new high above $1,030 during the first half of the year.
Also factoring in, says Dan Norcini, writing on jsmineset.com : “There still appears to me to be a fair amount of long crude/short gold spreading taking place. The thinking behind that play is that the worst of the economic carnage is over, commodity markets look to be perhaps bottoming, stocks are showing insufficient selling pressure to break into new lows and that therefore gold and other safe havens are no longer needed (hence the weakness in the bonds). You then buy crude oil on the expected economy recovery and get rid of gold.”
And those who consider Dennis Gartman, editor of the Gartman Letter , to be a contrarian indicator are likely to heed that he wrote, “It seems reasonably wise to reduce our gold holdings once again on this recent strength … Unless there is a sudden upward shift in gold holdings by the ETFs, weak demand for jewelry will weigh upon the gold price.”
Currencies and Economic News
In the currency market, the dollar rose slightly against the euro. Late Monday, the euro was trading at $1.2602 vs. $1.2641 on Friday.
Despite unending grim economic numbers, the buck continues to benefit from the perception that among world currencies it may be the least sucky, and therefore constitutes a safe haven of sorts.
Yesterday, the Conference Board added an exclamation point to Friday's jobless numbers. Gad Levanon, senior economist at the Board, wrote that, “Over the past year, the Employment Trends Index has declined faster than at any other time in its 35-year history, with the most severe decreases taking place since the fall.”
Levanon added that, “As job losses persist, the drop in overall earnings makes a rebound in consumer spending unlikely for the next few months. The decline in employment will only moderate once companies anticipate some revival in domestic and global economic activity.”
Sterling was also pummeled yesterday, “after weekend news Lloyds bank and possibly Barclays would cede shares to the government in exchange for participation in the government's Asset Protection Scheme,” wrote currency strategists at Brown Brothers Harriman.
However, Andrew Wilkinson, of Interactive Brokers Group in Greenwich, Conn., wrote that, “The reason we note that [yesterday's] pressure on sterling to be a little strange is that, once again we observe the British to be ahead of the pack in admitting mistakes and mopping up the spilled milk.”
In the energy market on Monday, oil rose again, with crude for April delivery closing at a two-month high at $47.07/barrel, up $1.55. April reformulated gasoline tacked on less than a third of a cent, to $1.3351/gallon.
OPEC was on everyone's mind.
“Crude-oil prices may be dictated by noise of further production cuts from OPEC nations this week, ahead of the meeting at the weekend,” wrote Nimit Khamar, analyst at Sucden Financial Research. This could push crude toward $50 a barrel, he said.
“A sustained rally beyond there is unlikely, given large-scale risk aversion and concerns over the global economy,” Khamar added.
OPEC Secretary General Abdalla el-Badri said yesterday that oil prices at about $40 a barrel were not suitable because they would not guarantee investment in future capacity beyond 2013.
The base metals were nearly all in the red on Monday. Copper sagged during the pre-dawn hours, rallied through the morning, but then backed off again late to finish at $1.6233/lb., down nearly 3¾ cents. Nickel had an up and down day, with the biggest down coming in the early afternoon, driving it to a close at $4.3114/lb., down more than 6½ cents. Zinc eased, ending at $0.5381/lb., down two-thirds of a cent. Aluminum held up through the morning, then plunged to its intraday low of $0.5643/lb., down a penny, while lead bucked the trend by rising steadily to $0.5565/lb., almost a penny and a half.
Copper fell off the most in two weeks, as global economic concerns ruled the day once again.
The message over the weekend from the World Bank was particularly gloomy. The bank predicted that the global economy will shrink this year for the first time since World War II. Trade is projected to decline by the most in 80 years, and industrial production could fall off by as much as 15%.
“Copper finds itself testing the low bounds of what we estimate to be the new range this morning as renewed economic doom and gloom takes over sentiment,” said Alex Heath, of RBC Capital Markets in London.
In the meantime, though, the supply side continues to shift. Inventories monitored by the LME fell 3,325 metric tons yesterday, to 518,700 tons. That followed a 3.7% drop last week, and stocks have now declined for eight straight days, the longest slide since April 1.
“The fact that warehouse stocks keep declining is a positive for copper and gives people some hope that demand is coming back in,” said Donald Selkin, chief market strategist at National Securities Corp. in New York. “It's helping to push copper to a higher trading range.”
South Korea, Asia's third-largest base metal buyer, isn't waiting for lower prices any longer, and plans to boost its strategic aluminum and copper reserves by 46% and 23% respectively this year, in anticipation of higher prices when demand kicks back in.
“This year offers the best opportunity to achieve value for money in stockpiling. We plan to actively purchase in the first half as metal prices are likely to gradually recover later this year,” said Kwon Tae-kyun, of the state-run Public Procurement Service.
In company news, Rio Tinto says it's not planning to delay construction of the Oyu Tolgoi $3 billion copper and gold mining project in Mongolia, one of the world's biggest deposits, denying media reports it was considering such a move with joint venture partner Ivanhoe Mines. The Mongolian government is expected to sign a long-awaited investment agreement within days.
That's what's happening … see you tomorrow!