Gold prices fell by an additional 2% overnight, and reached a low of $870.90 as the yen and the greenback appeared poised to benefit from the flight to safety more than it did recently. Bullion also fell away from the $900 level as the US measures to stimulate the economy were unveiled, crude oil slipped to $41 as OPEC fretted away, and as players took more profits following what now appears to have been a false breakout.
In any case, the recent divergence of gold and the dollar stopped and reversed course as this week draws near to a close. The $850 support comes into question next, unless a slew of fresh buyers feel compelled to run the metal back towards the $920 area from which it (once again) failed. Of course, some myopic pundits still believe that someone is not willing to allow gold to run to the levels they are suggesting (make that, demanding). Suggestion: Call Mumbai.
Spot gold opened in NY at $879.50, losing $6.90 per ounce as participants exhibit growing anxiety about the meltdown of Indian and Middle East gold offtake. Only 39,000 ounces the yellow metal made their way into India this month. Silver lost 7 cents to $11.88 per ounce, while platinum fell $3 to $946 and palladium showed no change, stalled at $189 per ounce. Automaker news certainly did not help the noble metals' price equation this morning. The Perth Mint launched a range of new platinum coins which highlight Australia's wildlife, Aboriginal culture and enduring landscapes (www.perthmint.com.au).
Economic malaise continues to batter the world, as evidence of corporate losses pours into a statistical database that has hardly ever looked worse. Ford lost nearly $6 billion last quarter, dropping an F-bomb upon its hapless shareholders that was louder that that of Serena Williams' at the Aussie Open. Sony's profits fell by 95%, Toshiba and NEC await losses for their fiscal year, Starbucks closed 300 more stores (who noticed?), Royal Dutch Shell lost $2.8 billion, Jet Blue sang the loss blues, the Russian ruble turned to rubble, and the comma key on our laptop just fell off.
The single most significant warning and acknowledgement of the nature and trend of the crisis that has gripped the world for at least a year, emerged from the Fed yesterday. Not mincing any words, the US central bank expressed alarm at the worldwide economic swoon and placed the prospects of deflation squarely in the middle of the table of possibilities. Today's continuing jobless claims figures hit 4.78 million - a record in that grim book that was started in 1967. Durable goods orders fell 2.6% last month, showing swooning demand for everything but weapons. Let's see what the fallout of all this is for the dollar today, and whether it can come to gold's aid.
That same table has thus far seen the words slowdown and recession as well as disinflation being used to describe that which we will now label as decession. The bottom line here is, that one might as well forget about stagflation and most certainly about hyperinflation - let's leave those equally unpleasant words out of the equation until at least the next decade - and even then, they are not likely to make the Fed's worry list.
With a 244 to 188 vote, the House passed President Obama's $819 billion economic revival package and it did so without any Republican support. Speaker Pelosi was not surprised by the lack of same, and indicated that some of the provisions offered by those who abstained were the very types of policies that gave rise to the crisis in the first place.
In Davos news, the speeches offered up by the leaders of China and Russia, could not have differed more. Premier Wen spoke in poetic terms and saw a recovery in the making (eventually, no?) while Mr. Putin declared the demise of capitalism (in so many words). Marketwatch's Bill Watts reports from the shadow of the mountain:
Delivering the keynote speech on the opening day of the yearly gathering of the world's top corporate executives, politicians, economists and others, Wen emphasized the importance of overhauling and tightening international financial regulations to restore confidence in the face of growing despondency over prospects for the world economy.
Wen's address was followed by a speech by Russian Prime Minister Vladimir Putin, who said the existing financial system has failed. Both leaders obliquely criticized Western leaders for failing to heed warning signs leading up to the crisis.
Wen said he expected China to produce gross domestic product growth of 8% in 2009, slowing from 9% in 2008 and a torrid 13% in 2007. The remarks come in a year that saw any remaining hopes dashed that rapidly developing economies, particularly heavyweights such as China, would be able to boost domestic demand as exports faltered, helping to blunt the global impact of a massive retrenchment by overextended U.S. consumers.
The crisis has inflicted rather a big impact on the nation's economy, Wen said. Still, previously announced fiscal stimulus measures, a big fiscal surplus, a well-insulated financial sector and adequate funds for undertaking big steps should prevent a deeper downturn, Wen said.
Also, without directly mentioning criticism of China's exchange-rate policy last week by new U.S. Treasury Secretary Timothy Geithner, Wen called for increased cooperation between the two countries to address the financial crisis. Since U.S. recognition of China in the 1970s, history has shown that a peaceful and harmonious bilateral relationship between both countries will make both winners while a confrontational one will make both losers, Wen said.
In written responses to questions from the Senate Finance Committee during the confirmation process, Geithner said China was a manipulator of its yuan currency. Wen's speech comes amid growing worries over the outlook for the Chinese economy. The World Economic Forum's annual global risks report released earlier this month warned that a slowdown in Chinese growth to 6% in 2009, combined with the world's other economic woes, could significantly damage an already-weakened global economy.
A year ago, pessimism was already on the march in Davos. But it was still relatively easy to find executives and other influential Davos attendees who remained confident that emerging-market economies, particularly China, would blunt the global impact of the slowdown.
Come 2009, global growth is suffering a sharp slowdown. Companies, such as Caterpillar Inc., that were still rolling up fat profits on emerging-market sales a year ago are now feeling the pinch. Since October, the global manufacturing sector has seen a remarkably synchronized deterioration in key indicators, with sharp drops in economic activity in the United States and the euro zone beginning to have a massively negative impact on emerging markets, including industrialized exporters in Asia, note economists at Danske Bank in Copenhagen.
For some Davos participants, the whole premise behind expectations for decoupling was flawed.
China and India have slowed, both economies remain largely in good shape, problems in the United States and Europe are too overwhelming to allow emerging economies to save the day, said Vineet Nayar, CEO of Indian global information-technology firm HCL Technologies, in an interview on the sidelines of the annual meeting.
Without mentioning the United States or other countries with large current-account surpluses, Wen said part of the international crisis stemmed from from inappropriate macroeconomic policies in some economies characterized by (a) low savings rate and high consumption.
He also criticized a lack of financial regulation and supervision, which he said allowed financial innovation to run away unchecked.
Wen called for increased cross-border cooperation and wider international financial regulation, as well as revival and completion of international trade talks under the Doha Round.
Such efforts are crucial to restoring faith in the global economy and overcoming the crisis, he said.
The harsh winter will be gone and spring is around the corner, Wen said.
Let us strengthen confidence and let us work together to bring about a new round of world economic growth. Some China watchers say fears generated by the latest GDP data are overblown. China's long-term potential growth rate is around 9.8%, notes Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y.
Given the government's desire to prevent overheating, a period of below-trend growth is inevitable, he said. We expect China to conduct policy to prevent growth from running too far below trend, but we do not believe the economy is in crisis or that it is falling into recession.
The slowdown reflects a longstanding crisis in export profits, while a close look at the economic data suggest the domestic economy has plenty of juice to keep GDP growing at near-trend rates even as the world economy slows, Weinberg said.
We are waiting for spring. And waiting.