A powerful rally in crude oil to a new record of $120.21 per barrel helped lift sagging spirits (and prices) in precious metals on Monday and helped gold prices advanced strongly, to within striking distance of $875. Gold was also eyeing a decline in the dollar to 73.18 on the trade-weighted index and back to the 1.55 level against the euro. Additional fuel to gold's 1.9% gain today came from a few more buyers returning to the market in the hopes that the $845 area might prove to be a good short-term support and that Indian buyers will give gold a favorable nod as the festival calendar sends them out shopping in the bazaars.
The economic calendar is fairly light on market-moving data this week, thus the trade will focus on the demand levels in India and on the renewed geopolitical tension between Iran and the West. The US is said to be drafting plans for a surgical strike on terror training camps inside Iran, while the country has suspended talks with the West over the war in Iraq and continues to defy calls for a halt to its nuclear development program. Continuing Nigerian violence is adding to oil's rebound.
New York spot trading was ahead by $15 at last check, quoted at $870.70 on the bid side, as participants lifted gold off its four month lows seen last week and tried to glean whether this consolidation had legs or would eventually give way to declines beyond the previous low of $845 (which was also the peak that bullion had reached back in 1980) and nearer to the $822+ level of the 200-day moving average. For the moment, things look fairly decent as Indian brides get ready to don their gold-laden matrimonial attire, but questions linger about the shift in investment sentiment and the 10% losses in balances in the gold ETF. Silver gained 29 cents to $16.65 but made no further progress, and the pgm group rose in concert, with platinum adding $25 to $1925 and palladium rising $7 to $422 per ounce. Aside from the fireworks in crude oil, the economic news of the day indicates that, according to CNNMoney:
Encouraging news for the slumping U.S. economy came Monday as a key survey of non-manufacturing business executives showed unexpected growth in the service sector in April. The Institute for Supply Management's (ISM) non-manufacturing index rose to a reading of 52 from 49.6 in March. Economists were expecting a reading of 49.5, according to a consensus compiled by Briefing.com.
However, all was not rosy within that picture: The prices index for materials and services rose to 72.1 in April from 70.8 in March. The inflationary pressures of rising fuel, energy and commodity prices are of major concern for members, said the ISM's service sector survey chair Anthony Nieves in a statement. As they are for everyone, everywhere.
Two more voices were recently heard chiming in on the unfolding of the credit and housing situation. Both are of the opinion that the worst is likely over, and that a turn is already underway. The first call comes from Warren Buffett - a name that precious metals fans often like to allude to (his foray into silver is well-known). Business Intelligence Middle East reports that:
Investment guru Warren Buffett says the worst of the global credit crunch is over for Wall Street, but not for the average man or woman on the street. The CEO of Berkshire Hathaway said there would be a lot of pain to come for mortgage holders. He made the comments as Berkshire Hathaway's annual meeting got under way in Omaha, Nebraska, attended by a record 31,000 people.
The meeting has become known as Woodstock for Capitalists.
The worst of the crisis in Wall Street is over, Buffett told Bloomberg Television shortly before the weekend meeting began. In terms of people with individual mortgages, there's still a lot of pain left to come, he added.
Buffett, ranked the world's richest man by Forbes magazine, praised the Federal Reserve's rescue of Bear Stearns. He said the move avoided financial market chaos. I think the Fed did the right thing in stepping in on Bear Stearns, Buffett said. Just imagine the thousands of counterparties around the world having to undo contracts. The central bank helped broker the buyout by JP Morgan, after financial institutions became reluctant to lend to Wall Street's fifth-largest investment bank.
Gold bulls may take comfort in the fact that Mr. Buffet expects the US dollar to continue to be weak although such weakness would not be the result of the passing of the credit storm, but rather of US policies as regards their impact on the currency. In the interim, the G-10's Trichet sees continued global growth but acknowledges that inflation is a global-scale problem and points squarely at oil, commodities, and food as the culprits. Solutions? None were evidently offered by Mr. Trichet at the BIS meeting in Basel.
The other opinion comes from Jim Cramer, who, in a TV interview with TheStreet.com's Simon Constable, noted that real estate is showing signs of a turn. His take? Foreclosures have not been the main driver of the cratering in real estate. Stubborn sellers who refused to get off their price targets and reluctant buyers who avoided paying ridiculous numbers for houses were the root cause of the impasse, according to Cramer. He now sees new homes coming onto market and being offered for 30% less by new home builders, and he also sees the NY area bedroom communities finally coming into the realm of realistic pricing following the contraction in the financial industry in NYC.
On a final note, Australia's Business Day reports that:
India may have to suspend trading in more food futures as political pressure grows for action to tame inflation, Finance Minister Palaniappan Chidambaram said. ''If rightly or wrongly people perceive that commodities- futures trading is contributing to a speculation-driven rise in prices, then in a democracy you will have to heed that voice,'' Chidambaram said in an interview with Bloomberg Television in Madrid yesterday.
Look for a continuing push to the upside and mind closing levels at 5:15 pm. A most welcome day of recovery after three weeks of gloom, this. Longevity of this move remains the focus.