Bungee-jumping without a helmet held nothing over being a market participant last night in terms of the thrill of rebounds and the agony of freefalls.
Gold prices ran across a $64 price spectrum giving almost everyone their money’s worth over the span of just a few intense hours. Whatever corrective action the recent drop to near $1,700 presented in terms of a developing trend was quickly forgotten during the past week and overnight. Quite the debut for the resumption of full participation by the trading crowd, one might add.
Trading in New York had not yet opened this morning when the yellow metal set a fresh price peak at very near the previous one and then dipped as low as $1,858 following certain… central bank-flavored currency market developments. As if on cue, gold’s renewed assault on higher prices was immediately accompanied by reassurances that it does not find itself in a bubble; nor that it might ever really do so.
As well, we are told, this is "normal’ volatility for an asset that is supposed to offer shelter from the very thing in question. On the other hand, some trading floors are getting the feeling that the "patterns" being manifested in this market at the present time warrant some precautionary action. Funny, such developments usually come about precisely when extreme volatility does present a potential problem to certain market-participating parties (all of them).
Actually, there is hardly anything "normal" about most of these markets, at present. To wit, the NYSE moved to invoke ‘Rule 48’ in a bid to mitigate what it expected to be a heckuva volatile trading session ahead for today. The Dow was down 270 at last check…
Unsurprisingly, this morning’s opening tally in New York presented a mixed bag of prices and price directions. Spot gold opened near $1,892.00 (down nearly $8) while silver started the session down at $42.20 with a 65-cent loss. Platinum was down as well, losing $20 and being quoted at $1,865.00 the ounce.
Palladium bucked the trend, rising $2 to open near $763.00 per ounce. Rhodium appeared immune to the turmoil and remained bid at the $1,850.00 per ounce level. News from South Africa had Zimbabwe’s President Mugabe saying that he expects foreign firms (mining ones among them, of course) to fully cooperate when the planned switch in ownership stakes in local operations eventually takes place. Mr. Mugabe also said that there is a plan afoot to establish a state mineral exploration firm that will gauge the size of the country’s wealth that resides underground.
The analytical team over at Standard Bank (SA) sees that "silver and platinum continue to track gold’s moves, while palladium remains largely unresponsive. Perhaps the lack of reaction in the palladium market over the past week is partly due to a cautious speculative market. According to the latest CFTC data, [palladium’s] net speculative length fell, losing 52.7k oz over the week ended 30 August. Net speculative length remains relatively weak compared to previous years. For now, participants in the palladium market seem to be waiting in the sidelines."
What else was down? Crude oil, for starters. Black gold fell $3.5% and dipped under $83.60 per barrel. Copper fell to a one-week low, but the US dollar gained traction as safe-haven seekers… sought it out (it was last seen at 75.59 on the index, up 0.31). In fact, the greenback appears to be breaking out of its recent consolidation pattern after having put the brakes on near the pivotal 73.50 mark on said index.
Technically speaking, first-line resistance in the USD near the 75 level has now been overcome while 76 and 76.70 still loom above. The US currency might receive a possible additional boost come Thursday; that’s when Mr. Trichet might announce that he is placing interest rate hikes on the back burner for the time being, given the drama (still) unfolding across the Old World that is making for plunging confidence levels.
What else plunged? Well, the Swiss franc sure did. And then some. So did commodities, overall. This was reflected in the S&P GSCI index dropping as much as 2.1% to its lowest value in more than a week. Coffee was… burned with a 1% and up to 2.5% decline and you can say the fact was almost welcomed by the throngs of returning-to-work traders who feel as if they might need many gallons of it in coming market sessions if they are to survive.
The Swiss National Bank finally drew the official line in the currency market’s sand and declared that it will not tolerate a euro-franc rate beneath the 1.20 level. Period. The SNB also declared that it stands ready to buy virtually unlimited amounts of foreign currency in order to make good on its words and intentions to curb the unwelcome rise in the country’s currency. Welcome back to the almost-forgotten currency wars of circa one year ago.
We have now seen Japan and Brazil also fire their own opening salvoes in this developing global market skirmish over recent months. However, the SNB today, pulled "Big Bertha" out of the hardened silo. Take cover. Much of gold’s falling away from its overnight price peak had to do with sellers who took a licking in the Swiss franc and had to cover losses in their positions with the disposal of some of the so-called ultimate liquid asset. Then again, one of the principal reasons to hold the metal is precisely to mitigate potential unforeseen losses in other assets.
Of course, some of the franc’s recent gains came at the expense of the euro; that much has been made eminently clear by investors voting with their pocketbook. However, despite the incessant calls and warnings that the euro is about to succumb, and/or that the very union that Europe has cobbled together is about to unravel, the fact of the matter is that- as the IMF’s European unit head, Antonio Borges recently said- what is needed is "more Europe, not less."
The Old World is apparently drawing closer to a fiscal union, rather than moving further away from it, as certain doomsayer publications would have it. While the reality of a European Treasury is still at the drawing board stage, one ought not to dismiss it as wishful thinking. Recall that, at one point, the idea of a united Europe was also seen as fantasy by many. Spending money under a concerted guidance; what a concept! Well, at the very least, it might avert the misspending of billions on certain apparently mismanaged endeavors…
As we look ahead at the likely-to-be-stormy-once-again week in the making, one item that is worth keeping on a sticky note: the first meeting of the bipartisan congressional committee to cut US deficits takes place on Thursday morning. The "Supercommittee" of 12 will try to come up with a $1.5 trillion slashing of the deficit. In play are sacred cows such as entitlements and taxes. Bonne chance, we say.
Until tomorrow,
Jon Nadler
Senior Analyst
Kitco Metals Inc.
North America
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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