September's first trading session got off to a mixed start in the precious metals' complex as traders were on hold for the release of US economic data and as they were digesting similar bits of information already in the pipeline from overseas. The overall market tenor is uncertain and is likely to remain so even after tomorrow's release of US employment statistics and ahead of the extended holiday weekend. Many expect Tuesday to really be the start of proper trading action as more and more players who are still out on summer holiday return to their workstations in a rite that resembles another annual event in San Juan Capistrano, CA.

Spot gold dealings opened with a gain of...$1.00 -if you can believe such a number after the past couple of weeks of that market's gyrations. The $1,830 resistance area (and the more significant one at $1,855 or so) is holding up for the moment but then again so has the $1,775 support one (as well as the far more pivotal one at $1,650), thus far. Spot gold was bid at $1,825.20 the ounce and players were eyeing a rising greenback as well as a small slippage in crude oil and a larger one (1.35%) in copper. More on the commodities' saga follows below.

Silver added 16 cents to start Thursday's action at $41.71 per ounce. Resistance in the white metal is currently in place above, near the $41.15 and up to the $43.10 level while the $37 level still presents a pivot point/ cliff-edge situation to be watched as we go forward. Platinum and palladium both gave back a tad in value as they opened for trading this morning. The former sank $4 to ease to the $1,839 level per ounce while the latter declined $5 to start off at $775 per troy ounce.

The ninth month of 2011 (my, how time is fun when you are having fun!) also rolled in amid hopes by market participants that the wall-to-wall volatility and nervousness that defined August might become a distant memory and that September might present a calmer environment within which to try to make a buck of five. However, with the US and European economies still appearing less than robust and with perceptions that a real pick-up in growth may be some months away, at least the commodities' sector appears to be starting the month off on the back foot.

Not that this is some kind of new, surprise development; the S&P Goldman Sachs Continuous Index of 24 commodities fell 1.7% in August, making for the third such decline in three months. August was also the month in which bonds outperformed commodities as speculators cut back on buying stuff in anticipation of the aforementioned slow and possibly contracting economic environment. We are now at a juncture where oil has lost 23% since its $115 peak on May Day and where copper has declined 10% since Valentine's Day.

Something else that dropped nearly off the radar map of investors last month was...the effect of the S&P's downgrade of the US. In fact the S&P's action was soundly rebuffed by the investing crowd as it piled heavily into...Treasuries (much to the chagrin of PIMCO which had bet heavily against them). To be fair, those instruments also rallied on the back of perceptions that the Fed might have to do something (starts with the letter Q) about the slowing economy. Such fears shaved nearly $5 trillion from the value of global markets last month.

Investors are aware that, this time around, they cannot count on the BRICS to keep the global economy out of the bog as they did in the scary days of 2007-2009. In fact, at least one of the BRICS in the global economic wall (China) is actively pursuing an application of the brake pedal as it tries to rein in inflation and pop various emergent domestic bubbles. This is one of the signals being heeded by commodity traders out there; they see that the demand for stuff from the BRICS is ebbing, as reflected by the 54% drop in shipping container rates over the past year, just for example. Reuters finds that if we gauge the world's economic health by PMI figures and by manufacturing activity, the diagnosis might, at best, be guarded. Simply stated, one does not consume consumer goods at a time when they are mainly in a mood to consume...Xanax.

Still, the picture is not all that clear-cut, especially when taking a narrower, regional as well as sectorial look at various economic conditions and metrics. For example, the orders that were placed with US factories in July were the highest in four months; a bump of 2.4% that surprised hitherto gloomy economists. US employers added 91.000 jobs in August. Even the thorny problem of joblessness (in the US) appears to be mainly a question of where one finds him or herself.

You say you prefer 6% unemployment (a number quite near the Holy Grail of full employment) levels? Simple: move to Vermont or to Oklahoma. If you focus on certain metro areas in Michigan or Nevada, well, you might just be staring at 14% unemployment. As we noted the other day, President Obama's (now delayed, courtesy of good old Mr. Boehner) speech on jobs will be at least as important for Americans to watch as the kick-off of the NFL season. Some sneaking suspicion/doubt remains as to what it is they will actually watch on the telly than night....

This morning's reading of the most recent initial jobless claims filings showed a decline of 12,000 in such applications for benefits. Yesterday's reading of the Chicago area business sentiment came in at 56.5% for the month of August; a number quite a bit better than had been anticipated. Over in the Old World, that same kind of indicator showed a reading of 49 (tipping into contraction) as it bounced along a two-year low level.

The exceptions to this shrinking indicators case were the manufacturing activity levels in Germany, Austria, and the Netherlands. As we said, this is a spotty picture, and one that is much dependent on where one looks, and at what they look. The weak eurozone data helped spark a sell-off in the euro (to under $1.43) this morning and boosted the US dollar to 74.53 on the trade-weighted index.

With all of the above unfolding, one might excuse various central bankers for showing a modicum (and more) of confusion and indecision. Further rate hikes appear to be given slim odds over in Europe at this juncture. In the US, the Fed is grappling with Capitol Hill as much as it is grappling with internal dissent on what to do next and whether or not any such action will have the intended effect. In fact, the growing rift within the membership of the FOMC is now eerily starting to resemble the divide that is widening in the US Congress.

The Fed hawks versus the doves, the FOMC activists versus the cautious skeptics, it all mirrors the goings-on we all had to endure when watching the circus sideshow-quality broadcasts from DC that filled the airwaves prior to the day the US was supposedly due to default on its debt. Maybe, just maybe, such growing discord is more a sign of people simply not knowing what exactly to do and it has less to do with what they are capable of doing.

No surprise then, that Atlanta Fed President Mr. Lockhart was heard saying (yesterday) that he does not think any policy option can be ruled out at the moment. More importantly (although it was lost on reporters as well as the general audience) Mr. Lockhart also noted that monetary policy [should] not be seen as a panacea. In so many words, miracle workers, we are not. He later admitted he is not in favor of additional easing at this juncture. Hey, hey, what can I do?....Oh Lord, what can I say?

This kind of situation and this type of vagueness are possibly at the root of the deep uncertainties that Mr. & Mrs. Brainsample are feeling out there on the proverbial corner of Main Street and Maple. And, now, they will have to remain in suspense until the 21st of this month to learn what rabbit will or will not emerge from the Fed's top hat...

Until tomorrow, keep the magic alive

Jon Nadler Senior Metals Analyst 
Kitco Metals Inc. North America
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