Faith, Hope, and Charity – Wednesday Kitcommentary

by Jon Nadler, Kitco Metals Inc. on March 16, 2011 · 0 comments

The gravity of the worsening nuclear situation in Japan was underscored by a rare overnight television address to the stricken nation by Emperor Akihito.

Bullion BarsThe series of fires and ebb and flow of radiation levels in and around the compromised reactors at the Fukushima complex has prompted the Nuclear Safety Authority in France to elevate the severity of the disaster to a "7" — a rating that would place it on par with the Chernobyl accident that took place in 1986.

The rising radiation levels have now hampered rescue and recovery efforts over a wide area, as did near-blizzard conditions in some quake-affected regions of Japan. More than 11,000 are thought to have perished in the catastrophe, when the still missing souls are factored in and presumed dead.

The International Energy Agency, on the other hand, disputed that stark assessment and said that there should be no comparison made as yet between Fukushima and the meltdown at Chernobyl. While the agencies squabbled over the scale of the disaster, people from Siberia to Texas were scouring health food and drug stores and cleaning them out of the sodium iodide pills that could prevent the development of thyroid cancer in the event of exposure to nuclear radiation. Flights into Tokyo are becoming a scarce event for many airlines and a raft of foreign embassies have either suggested or ordered their staff to depart Tokyo.

Despite the aggravating situation in the country, Japanese equities staged an overnight comeback and recovered some 5.8% of the staggering losses they sustained on Tuesday. The same can be said about various commodities, which also turned higher on Wednesday, but whose market participants remain as nervous as can be and have kept a steady finger on the "Sell" button since last Friday, just in case. Much of today’s rebound was attributed to MENA tensions as it was Bahrain’s turn to make headlines in that turmoil-laden region.

There is as yet no clear view and consensus on what the short and medium-term impacts of the Japanese disaster are on base and precious metals, energy, and other commodities. For the time being, price recovery is manifest, but one can expect plenty of volatility and irrational market responses to yet materialize. The news headlines yet to come will be the defining price-moving agents in these markets and overreactions will continue to be the order of the day(s). For now, the focus is also on trying to estimate the ultimate costs of the event. Analysts have thus far pegged the size of said costs anywhere from $125 to $250 billion and they expect a Q2 GDP contraction to become a reality for Japan’s economy.

The midweek spot market precious metals dealings opened to the upside in New York. Playing roughly equal parts in the morning’s gains were the basic and to-be-expected knee-jerk type of rebound that normally follows a very bad previous session, the Moody‘s downgrade of Portugal‘s debt, and the flare-up of violence amid protests in Bahrain. Col. Gaddafi also appeared to be edging closer to fully smothering the uprising in Libya. This, even as the Arab League suggested that it is willing and ready to intervene militarily in that country (something the West and the UN have dithered on for weeks now).

Gold trading opened with a $7.80 per ounce gain, and the yellow metal was quoted at $1,403.50 as of 8:20 AM in New York. Bullion has frustrated the bulls in a major way since Friday, as a maelstrom of "perfect storm" conditions failed to lift it to new records and the metal headed much lower instead. Some technicians have tendered the possibility that "value" buyers may not turn up in this market until prices start getting closer to about $1,325.00 per ounce. Sustained closings above $1,405 (and beyond) could alter all of that and bring out some hesitant bulls.

Silver began today’s trading session with a 41-cent rise, to the $34.67 per ounce mark. The same thing can be said about the 1.2% rebound in the white metal, following its near-5% meltdown on Tuesday; what goes down, must (eventually) come up, even if by one-fifth. Certainly, the morning’s gains were not due to some sudden revelation that Japan will imminently need a bunch of silver for rebuilding efforts.

Platinum and palladium climbed in concert, and posted larger-than-1% gains as the Wednesday action got underway in New York. The former rose $23 to reach $1,724.00 per ounce, while the latter advanced $14 to start the day off at $719.00 the ounce. No changes were reported in rhodium, which was still showing a bid-side quote of $2,350.00 the troy ounce.

In the market background, crude oil was having a relatively "good day" for a change, rising $1.23 per barrel to the $98.41 mark. Then again, the US dollar was not faring too poorly either, as it showed a 0.11 gain (@76.58) on the trade-weighted index, despite a couple of not-so-hot news bits from the US economic scene; a poor showing in US housing starts, and an energy-and-food induced rise in PPI levels.

Almost (but not quite) lost in the flow of news on Tuesday was the Fed meeting and its subsequent policy statement. While no willingness to prolong or expand QE2 was manifest in the language of the post-meeting communiqué, the FOMC did leave interest rates right where they are and apparently plans to run the full $600 billion bond purchase program to its June "expiration" date. Its (and other central banks’) plans to begin an interest rate hike campaign could be held back by the escalating threat that the Japanese disaster could pose to global and/or regional economies, but such a retreat from intended policy is not yet being given very high odds.

Mr. Bernanke’s team removed a series of key words from the Fed’s language arsenal on Tuesday; words such as "disappointingly slow" (re: the US economic recovery) and "tight credit" (re: lending conditions). Instead, some new, more "cheerful" words were introduced -words such as: "firmer footing" (re: the US economy’s standing) and "gradual improvement" (re: labor market conditions).

Of note is the fact that the Fed has remarked on commodity prices at this juncture. In the first place, the FOMC acknowledged that such prices have spiked significantly since last summer. Moreover, the Fed feels that such gains are transitory, and that it is paying close enough attention to them that it will take appropriate "action" when it becomes timely and/or necessary.

Finally this morning, a word of advice about the unfortunate events in Japan and how you can step up to the charitable plate and help. But, first, you need to ensure that your generous donation will actually make it to its intended recipients. Scammers and opportunists have quickly flooded the Internet with bogus sites that are intended to help only themselves to your money, and not the poor victims of Japan’s disaster. Here is a most valuable tip from Marketwatch this morning:

Whether you plan to text your donation or mail a check, make sure the charity is an established organization. Go to sites such as Charity Navigator ( and the Better Business Bureau’s Wise Giving Alliance ( to vet the charity.

Do give. She needs you to help.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and

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