After having finished nearly flat last night, gold prices resumed their downtrend early this morning, and sank closer to the $945 level as the dollar maintained above 80 on the index, but despite a further rise in crude oil, which vaulted above $72 per barrel. Support for the yellow metal extends from $933 to near $940 and hopes that this dip might be contained at or near those numbers, remains intact - albeit showing signs of nervousness.
On the other hand, COT positions indicating overbought levels still offer the potential for a drying up of buying sources in the market and thus the prospect of stagnation around levels under $960 for a while. Open interest is leaking out of this market again. Gold industry news continues mixed, as well. We reported on China's massive rise in output and the continuation of same as this year rolls on. Things are not looking as good over in South Africa however. Old news as a trend for the country is concerned, yes, but it is being reinforced by April's 13% drop (in volume terms) in output down there.
Bullionembarked onThursday's trading session with a $7.10 dropto $947.00 per ounce, although the US dollar was still seen as vulnerable to dips under 80 following Russian urgings for a supranational currency designed to challenge its status. Econguru Nouriel Roubini sees the greenback's current reserve status as coming under pressure and envisions a partial give-up in the degree of dominance that is currently enjoys in the global system.
Take out your highlighter and note the angle offered by Mr. Roubini ( the 'original' Dr. Doom & Gloom): the US dollar is not about to go belly-up and vanish from the scene. It's more like a Slim-Fast session. At least until the Fed pulls out some interest and tax rate hike chocolate milkshakes. In the interim, the Fed's strong-arm tactics during the BofA-Merrill takeover will be sure to keep that institution on the radar - and not in very favorable terms. It's a developing story, but one that will gain a lot of traction in coming days. Essentially, the bank was told that it could either pursue the takeover of the ever-bullish firm or risk having management be gone. Subtle memo.
Silver lost16 centsshortly afterthe opening bell, trading at $15.01 per ounce and threatening a fall to under the round figure. Platinum lost $8 at $1254.00 per ounce, while palladium managed a small $1 gain at $255 an ounce. Initial unemployment claimscame in way under estimatesthis morning, and they were at their lowest level since January.
Surveyed respondents at Bloomberg have indicated a suspicion that the US unemployment rate will edge to practically 10% before this year runs out. At the same time, US consumer spending is expected to drop to its worst levels since 1974. Last month, however, retail sales showed their best performance since January. And so, the story continues to unfold in the world's largest economy. A mixed story, to be sure.
Marketwatch's David Callaway finds that the more certain things appear to have become, the more we might still wish to keep the worry radar on full-speed spin. While David normally finds the inevitable humor in many of the topics he covers, this is as serious as it gets, since a big shoe dropping could reignite the depression-flavored liquidation frenzy we all witnessed last summer and fall. Fear is but one news headline behind the rice paper screen:
Forget green shoots. We've seen a veritable hothouse of economic, market and political vegetation sprouting in the past several days that clearly shows the worst of the financial crisis is over. If only investors could be so sure.
The latest piece of good news came from Mr. Green Shoot himself, Federal Reserve Chairman Ben Bernanke, when his central bank released its monthly Beige Book report Wednesday on economic activity, saying that five of its 12 district banks around the country reported that the downturn was moderating. That's not exactly a shotgun start to the next bull market. But it is progress.
Here are nine other reasons to put down the revolver and the cans of Spam hoarded for the next great depression and begin to live again.
The Latvian Conspiracy: Worst-case scenarios for a global meltdown have gone from the collapse of Citigroup or Bank of Americato a devaluation of the currency in Latvia, the mighty lat. Currency experts fear a domino-like meltdown extending to other Baltic states and Eastern European countries, through to the Swedish banks with the most money to lose in the region. Nerve-racking to be sure, but a Lehman Brothers-like collapse it's not. If this is our main worry, things are looking up.
No sway on pay: The Obama team scaled back its plans to slap onerous compensation limits on executives, instead kicking most of the issue back to shareholders and the elite Securities and Exchange Commission. A special master of compensation was named on Wednesday -- Washington lawyer Kenneth Feinberg. While the term special master invokes a boarding school creepiness to the whole affair, at least it's better than pay czar. We've already had a drug czar and an auto czar. What's the big trip on the term czar anyway? Doesn't anybody remember what happened to the last real Czar?
Stock cop flop: The more the stock market rose in the past two months, the less effort the Treasury put into the idea of reforming our splintered financial regulation system. Like in the U.K., where efforts to centralize regulation are still on the table, politicians in the U.S. really don't have the stomach to solve territorial disputes between regulators and come up with one or two top cops. Giving the Fed more power is scary. Combining the SEC and Commodity Futures Trading Commission is scary. Bernie Madoff is scarier.
Bad for America, good for the market: If somebody had told me even a month ago, much less 22 years ago when I wrote my first story about troubles at General Motors, that on the day GM went bankrupt the stock market would rise, I would have bet them the keys to my old Pontiac Firebird. The gains were testament to the Obama team's ability to spin what last year would have been regarded as a national disaster, and the market surged on hopes GM would emerge from Ch. 11 protection leaner and better. If only I could say the same for that old red Firebird, worth about 300 GM shares at Wednesday's price when I finally sold it.
Bad for America, good for old boys: Speaking of GM, the appointment of former AT&T chief Ed Whitacre Jr. to run the company when it emerges from bankruptcy, and the naming Wednesday of Procter & Gamble insider Robert McDonald to be its new CEO, really instills confidence that corporate America has moved away from the old-boy network to a new, more innovative generation. But as a sign that things have returned to normal? Hey, looks like it's OK to join a country club again.
Hard-line hardware: Now that the 20th anniversary of the Tiananmen Square massacre has passed, and the Chinese government has re-opened access to Twitter, Facebook, and every other Internet avenue used to discuss its timeless shame, the Communist country's entrenched leaders are on to their next outrage. They're asking computer makers to ship Web-blocking software with all new PCs as of July 1. Horrible, to be sure, but a sure sign the government has gotten past the economic hurdle of helping its citizens rebuild and can now get back to harassing them.
What's bet online stays online: Even as Macau turned the lights back on this week with the opening of a Hard Rock Hotel as part of its massive new City of Dreams gambling resort, U.S. regulators were freezing millions of dollars in assets of online poker players in the U.S. At a time when the federal government and most states are in desperate need of revenue -- such as the potential windfall in taxes from legal online gambling -- it's comforting to see they aren't so hard up or worried about the economy that they can't indulge in some good old American prohibition. To the crap tables!
Yields of dreams: With the economy still on shaky ground -- at best -- it's heartening and a welcome distraction to witness a vigorous debate in the market about the return of inflation. To have some experts predicting an increase in Fed interest rates by the end of this year is a stitch. But at least the debate has shifted from the ravages of deflation and a sliding economy to something a bit more positive, even if it's inflation. That $4 trillion wall of government money spent to keep us out of depression has to hit the economy at some point. Hundred-dollar oil, anyone?
That's our story: The most glaring example of why we have seen the worst is that slowly, far too slowly, the media consensus has shifted from the theory that we're in a huge bear market rally to the one that we've seen the bottom. It's taken three months, but more folks are optimistic now than not. And that's why investors should be scared. While the real answer to what's going on in the market should be who cares, it's going the right direction, the shifting of consensus leaves the market vulnerable to a shock of some sort.
The last time I wrote a column like this, when things were looking up after a severe recession, was April 2001, six months before the unthinkable happened in September. It's a humbling reminder that while the economic evidence of the beginnings of recovery looks solid, the market always dances to its own tune. And for the caretakers of those green shoots, that tune could easily still be a lawnmower.
In the interim, at least as regards the first bullet point, Moody's said this morning that Latvia might well avoid a devaluation of its currency and that such a move would be devoid of benefits. Now, think Latvia on the Hudson. Even a Roubini-style 'moderate' change in the greenback's global billing would hike its financing costs and erode its economic status.
At least up to now, this is not seemingly an issue. BRIC countries increased their foreign exchange reserves by $60 billion last month alone. They were -as a group- seen accumulating US dollars (gasp!) at the fastest rate since the credit markets ground to a halt last fall. Exceptions? Sure. Brazil fell in line with Russia and is seeking more IMF bonds in lieu of greenbacks.
Do note that theBrazil (as Russia) is overtly aiming to ratchet up its level of clout in the global financial system. How such a feat will be accomplished largely involves keeping its own currency's exchange rate down and trade surpluses humming along. Without a steady shopping spree for good old dollars, such a task becomes a mere pipe dream.