New York spot gold recorded nice gains after five days of losses and was last quoted at $895.60 per ounce as players digested a mixed bag of news on the economic front. The ADP jobs survey came in better than expected but US factory orders declined more than had been forecast. The US dollar rose initially, then headed somewhat lower as Fed Chairman Bernanke painted a cautionary picture for the US economy for at least the first half of this year. No real news, that. Stocks and the greenback took his words to mean one more cut and sank, while gold took them as a cue to try to overcome $900 one more time. Thus far on the day, just shy of it.
A raft of further economic data is still slated to come into the picture over the next 48 hours and depending on what the numbers reveal, the bulls may attempt a push back to higher levels as the week closes out. There are no guarantees however, as sentiment has been shaken and stirred across the board in commodities. A quick glance at the Kitco one-year gold chart starts to reveal an image of Mount Everest that is now drawing the right side of the summit. However, just like a Rorschach test, some see only an alpine valley in the picture and more peaks ahead in the mist.
Overnight gold trading saw prices stabilize near $880 and the metal enjoyed some mild bargain-hunting from physical demand channels whose patience has been rewarded with prices almost 10% lower than one month ago. Indian buyers remained on the cautious side, awaiting still lower values before they set out shopping for the upcoming April/May auspicious wedding period. In the interim, Turkish demand practically fell through the floor of Istanbul's bazaars as the country imported its lowest ever amount of bullion last month. Six hundred and seventy five kilos. More than five thousand kilos of scrap made it into the market year-to-date, on the other hand. Says something about price perceptions, yes?
The spectre of deleveraging still looms large above the markets despite bugle calls for the commodity supercycle to continue indefinitely. Thus, the resumption of the trend towards a possible repeat trip to the $845 previous all-time high should not be shelved as improbable. Silver managed to turn early losses into a 27 cent gain to $17.13 later in the session, while platinum rose $29 to $1951 after GM and Toyota expressed confidence in an auto sales rebound on the heels of a double-digit drop in same during March. Good time to buy that hybrid and ditch the SUV. Palladium was quoted at $440.00 per ounce, up $1 on the day. News from South Africa implies that Eskom wants users to get used to the idea of electrical power being rationed for the foreseeable future.
Ben Bernanke was not the only one to openly suggest that a slowdown is already underway in the economy that is under his watch. The IMF is of the opinion that more than just the US is about to experience a contraction in activity. The Sydney Morning Herald reports that:
The International Monetary Fund cut its forecast for global growth this year and said there's a 25% chance of a world recession, citing the worst financial crisis in the US since the Great Depression.
The world economy will expand 3.7% in 2008, the slowest pace since 2002, according to a document titled IMF Background Paper on the Update of the Global and Regional Outlook. In January, the fund projected growth of 4.1%. The IMF gave a 25% chance that global growth will drop to 3% or less in 2008 and 2009, a pace the fund described as equivalent to a world recession.
The fund lowered its forecast for US economic growth to 0.5% this year, according to the document, below a 1.5% prediction made in January. The world's biggest economy will expand 0.6% in 2009, it said. The euro region will expand 1.3% in 2008, the document said, down from the fund's 1.6% projection in January.
Growth in the US and Europe is slowing sharply, the IMF document said. The ECB can now afford some easing of the policy stance.
The notable conclusions that such slow growth equates a recession and that the Old World could cut interest rates in a replay of the Bernanke Slash should have commodity traders think long and hard about future demand for 'stuff' as well as the prospects of a stronger dollar against a euro that is 'managed' to lower levels. All of this, is still unfolding against less than comfortable levels of inflation in the global system. Tough set of conditions. Bob Dylan's Slow Train comes to mind.
The G-12 will have their agenda quite full when they meet later this month. Mr. Bernanke himself might have to offer up one final rate cut 'for the road' (he hinted at the apparently imminent closure of the rate cut cycle today) and then get on with his primary focus (very much in evidence in his words today): combat against inflation. He saw but one commodity whose high current price has a silver lining: oil. Why? The stimulus such prices give to the search for alternative energy sources.
Speaking of the US central bank, we have repeatedly put forth the idea that global central banks are becoming but marginal players in the gold price and supply equation. Such 'heresy' was countered with red flares from the aluminium hats who assured the rest of us that gold was, and is, very much indeed, under the heavy cast-iron lid of the CBs. Yes, and that is why it was 'permitted' to rise three-fold. Time for outside opinion to now be quoted:
Investors should not overrate the role of the world's central banks' power over the gold price, an analyst said on Wednesday. Hartleys director Martin Pyle said central banks contributed to some volatility in world gold prices but in real terms, commanded control over only 25% of world gold reserves. Quoted in a press release based on his address at the 2008 Paydirt Gold Conference in Perth, Pyle said: Central banks should not be viewed as the be-all and end-all in influencing the gold price.
Their control is further limited in that 50% of their holding at any time is also subject to orderly sales agreements and the banks are not achieving these orderly sales currently, he stated.
What sales they are securing are in the order of US$5-15 billion a year but that is small in terms of the financial scale of global markets - at a time when the gold price has risen by 300%.
In other words, they could care less. They will sell if they have to (the original purpose of placing the stuff in the basement), they might buy if they are trying to build confidence (Russia) but they will otherwise abstain (China, US, Germany, etc.) from getting in or out. Which is a lot more than can be said about the eighth largest 'central bank' out there. The gold ETF. There are no WAG agreements or policy makers to discipline its constituents and their holdings.