At the end of the day, neither oil nor gold were able to hang on to all of their earlier gains and tilted into unchanged-to-negative territory once again in the mid-afternoon hours. The trade continued Monday's selling spree which shrank the open interest by more than 15,000 contracts and brought the metal to a one-month low of $813.10 per ounce overnight. As of now, all but $15 of December's gains in bullion's value have now been given up this month, and two-thirds of this drop was recorded in yesterday's session alone.
A modicum of bargain hunting averted additional price dips, however the yellow metal appears to be aiming for a retest of support under $800 in the near-term. One week ago, UBS issued profit-taking advice for gold longs as well as forecasts regarding the possibility of $800 gold in one, as well as three months. Thus, UBS advises a buy under $800 spec play, while economist Dennis Gartman calls for a sale into rallies above $890 - should they happen. A $100 trading range opportunity should keep speculative money fairly interested, albeit physical demand is having some difficulties getting started this year.
Flying in the face of gold supply scaremongers whose sales agenda is obvious, we have already reported that China's 2007 gold output rose by 12.67% and was ahead by more than 4% through Q3 of last year. Now, comes news that Russia achieved a double-digit gain of its own in gold production last year. Reuters reports that
Russian gold output rose by 11.1 percent to 168.84 tonnes in the first 11 months of last year from 151.91 tonnes a year ago mainly on the back of increased mine output, the country's main industry lobby said on Tuesday. The Russian Gold Industrialists Union has said it expects gold output to rise this year by 8 percent overall to 176 tonnes after five years of decline.
Output from mines rose by 11.5 percent to 151.16 tonnes in January-November 2008 from 135.52 tonnes a year ago, a union statement said. Output achieved by refining gold from scrap rose by 22.9 percent to 6.46 tonnes from 5.25 tonnes. Production of gold as a by-product of other metals rose 0.7 percent to 11.22 tonnes from 11.14 tonnes, it said. Most Russian gold is mined in the country's east.
Krasnoyarsk in eastern Siberia -- home to top miner Polyus Gold's main mines -- was the country's largest gold-producing region in the first 11 months of 2008. It was followed by the Siberian Republic of Sakha (Yakutia) and the far eastern Chukotka peninsula, union data showed.
Conditions are far from the Russian situation in Peru however, where more than 5,000 miners have lost their jobs since last month as the metals markets went into reverse last year. About 1,100 of those jobs were lost at Newmont's Yanacocha gold mine and Freeport McMoran's Cerro Verde copper pits. Zinc miners and steel workers in the country fared no better. Production halts and plant repairs are the order of the day.
Thus, on-going global economic pain remains the main feature of the flow of business news on this day in January. Massive losses at Japan's Sony, Canon, and Toshiba contributed to the Nikkei's 422-point overnight wipeout. Formerly gadget-hungry consumers are focusing on the absolute necessities and are shunning new/improved versions of...everything. This includes cars, as trends reveal that drivers are hanging on to their buggies longer. Alcoa lost $1.2 billion last quarter, following a 56% drop in aluminium prices last year.
China's imports and exports fell sharply in December and threatened additional job losses in the manufacturing and export-oriented coastal areas of the country. The government is trying very hard to avoid a deepening of the slump, but may miss this year's objective of 8% growth anyway. Citi shuttered its private banking offices in China as perhaps it expects a lot fewer millionaires to be freshly minted in the country anytime soon.
Germany unveiled a second, $66 billion stimulus package intended to do the same but at the end of the day it showed only that eurozone governments remain behind the curve in assessing the severity of the local and global contraction and remain woefully behind the curve in stimulus rollouts. Mr. Bernanke said the US stimulus packages may prove inadequate and that more creative means of tackling the problems may have to be resorted to.
New York spot gold prices meandered without a concrete direction in the afternoon hours, as prices oscillated on either side of the unchanged mark, but only by about a dollar or two. The metal started the day at $817.70 per ounce, marking a $2.20 loss. It was ahead by $1.70 at last check. Participants alluded to the US dollar's gain of another 0.97 to 84.22 on the index, and crude oil's fall to $37.26 per barrel as the prime culprits for bullion's inability to bounce back in a meaningful way today.
Evidently, risk aversion keeps flourishing and may receive a new impetus following Mr. Bernanke's take that the recovery in the US economy remains difficult to time. He also said that further stimuli and coordinated government responses to the crisis will be necessary, while stressing that the Fed has plenty of other ammo which could be rolled out if conditions warrant. There, don't you feel better already?
Forecasts of $30 oil have made their way into the news once again this morning. Silver gained 10 cents, rising to $10.72 in the afternoon, while platinum sank another $15 to $937 per ounce. Palladium dropped $2 to the $183.00 level. Platinum has run into significant resistance at the $1K level and was unable to surmount it.
Auto industry woes are keeping a firm lid on platinum and palladium values, despite indications that some mines are facing decisions which could involve some production halts. Noble metals cannot thrive on their other industrial and jewelry applications alone; they need a healthy automotive sector to keep them in a demand equation that is conducive to higher price levels. South Africa's Investec has scaled back its price projections for 2009 in these metals precisely because of such background conditions (it feels that platinum might average $970 this year). Meanwhile, over at the Detroit auto show, Saab and Volvo continued to showcase their metal even as their US owners (GM and Ford) are likely to jettison the brands in their survival quest.
Global investors are still rowing hard against these swift economic currents, and are trying to keep their asset rafts from capsizing and hoping to make it through what is shaping up to be another very difficult year. Perennial Marketwatch curmudgeon Paul Farrell offers the following twelve tips for financial survival this year, courtesy of Forbes columnist Gary Schilling - who, by-the-way is said to have been right on target with his 2008 calls:
1. Sell home-builder stocks and bonds.
2. If you plan to sell your house, second home or investment houses anytime soon, do so yesterday. (Yes, another 20% drop is coming.)
3. Sell some housing-related stocks.
4. Sell some consumer discretionary spending companies.
5. Sell most commercial real estate.
6. Sell some commodities. (But proceed carefully: Selling some securities, or buying, or actively trading in today's volatile markets demands a level of skill sets, savvy and sophistication most investors lack.)
7. Sell emerging-market equities.
8. Sell emerging-market debt.
9. Sell stocks in general. (Shilling's forecast of a severe recession suggests that corporate profits, as defined by the Commerce Department, will fall 48% from their peak in the third quarter 2007 to the fourth quarter 2009, and drop 32% from 2008 to 2009. This forecast implies much weaker S&P 500 earnings than projected by Wall Street analysts and strategies whom he says tend to be overly optimistic, especially in recessions when analysts don't want to offend managements of the companies they follow with low numbers.)
10. Sell consumer lenders' equities.
11. Buy the dollar.
12. Buy, carefully, high-grade bonds.
Adding our own number thirteen, Please ensure that your 10% gold insurance policy remains in place. Trading the metals for profit may be a daunting task and unless you chew coffee beans for snacks, is not highly advisable.