Gold prices went on a vertiginous roller-coaster ride on Friday, rising at the start of the session, dropping in a mid-morning free-fall, and then recovering in the early afternoon. The large drop, to $869, was seen despite a dollar that continued on the weaker side today, and was partially attributed to crude oil coming off about one dollar from another record high of $126.20 per barrel. The counterintuitive move and the metal's inability to mount a serious rally to at least $900 on a day when oil set new highs and platinum advanced $75 per ounce does raise some valid questions as we go into next week. We cannot cheer about the comeback as much as we have to wonder why there was a significant decline to begin with. (And, please, leave the conspiracy theories on the shelf, where they belong)
Indian festival demand came to a close as local went through the motions and bought a few tonnes of coins and such, but the price certainly was not making them all that happy. The Economic Times of India sums it up: The local market digested the outcome of the two-day Akshaya Tritiya festival that ended on Thursday, but the largely moderate sales showed Indians were not used to gold's current levels, traders said. Demand for gold is set to taper off in the weeks ahead and slip into a lull as the monsoon sets in next month and weddings become rare.
Demand for commodities as inflation hedges resurfaced this week, after oil's largest weekly gain in more than a year. Black gold has now doubled in value and poses serious threats to the global economy. Americans may well spend this driving season paying closer and closer to what their motoring counterparts in Europe and elsewhere are already paying. Or, not driving. Try $6 per gallon or more, for a start.
New York spot trading was -at last check- showing the same $2.50 gain at $885.50 bid, with which it opened the session. A close of from $885 to $890 could still set it up for its best weekly gain since February, but such progress has been difficulty-ridden. The dollar continued to decline towards 73 on the index in early trade, as it grappled not only with the parabolic oil price track, but also with an amalgam of financial firm losses and woes ranging from Allianz to AIG to Citi. To cap things off, the greenback also weighed the ECB jawboning regarding rates not budging any time soon (as in lower) in order to fend inflation off.
Pressure on gold however, also came from the rising conviction that the Fed is done with its rate cuts and might embark on the opposite track come year-end. Silver lost 3 cents to $16.80 while platinum rose a very robust $71 to $2089 and palladium climbed $7 to $443 per ounce. The advent of two UBS exchange-traded note products in platinum has had the market on fire and certainly helped it reach back to two week highs. Aside from this, the headlines were once again hijacked by crude oil. Investors remain transfixed by it. Gold -for its part- may be looking more at the economic damage oil might inflict than at the inflationary implications of its stratospheric price. The jury is out for now.
Someone else who has been preoccupied with commodities for quite some time now, has chimed in on the ongoing saga in these markets: Jim Rogers. Yes, the one who picked up and moved from the USA to...Singapore because he likes China so much (except for the smog). Courtesy of the China Post, we now offer you Mr. Rogers' predictions and musing on an assorted list of items. Again, his opinions, but not all not necessarily ours:
- Gold is in a correction right now. I suspect it could go down to US$800, who knows, or US$750. I'm terrible at market timing, but if gold goes down some more, I plan to buy some more.
- I've started to think about buying base metals, Rogers said. I'm not buying base metals yet but I've noticed some of them are down a lot and if they continue to consolidate, I will probably be buying base metals.
- Oil in my view will certainly have to go above US$150 or even US$200 during a bull market. This is not a short-term view. We've not had a major oil field discovery anywhere in the world over 40 years.
- Agriculture is going to be one of the most exciting growth industries in the world for the next 10-15 years. Conservative agricultural banks such as Rabobank NV will have their sun now.
- Rice prices have to go much higher before supply rises. Rice at times in the dark recesses of history, adjusted for inflation, was much higher than now. Inventories are very low and nobody's becoming a rice farmer these days. Young Chinese haven't gone into rice farming in the last 30 years. They've headed to Shanghai and gone down to the new stock exchange or commodities exchange and that's true in most parts of the world.
- I expect a nice rally in the American dollar because so many have been bearish on the American dollar including me.
- America is also a huge producer of agriculture and if I'm right about agriculture prices, which I think will go up a lot, that's going to help America compared to those countries which don't have agriculture.
On a final note this week, for those of you living in or around NYC, you might consider coming down to the New York Hard Assets Investment Conference taking place at the NY Marriott Marquis, in Times Square. The event will take place on Monday and Tuesday next week. Register here, the admission is free (!) http://www.iiconf.com/pebble.asp?relid=62254
Our staff of highly dedicated and very lovely Kitconettes from the Investment Department are off to the Big Apple and they will be on hand to tell you all about our newest product - the Kitco Royal Canadian Mint Prestige Account. The writer will participate on a panel discussion and host a workshop - both on Monday, the first day of the annual event. See you there!
Happy Trading. Pleasant weekend.