In The Lead – Jobba the Hut

by Jon Nadler, Kitco Metals Inc. on September 2, 2011 · 0 comments

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Precious Metals CommentaryWay in advance of the release of the US payrolls data the gold market appeared to cast its vote on where on the numbers’ spectrum such statistics coming from the US Labor Dept. would reside this morning.

Bullion prices gained nearly 2% in advance of the opening of the New York trading session and they did so despite a steady-to-rising US dollar and (once again) despite a loss of nearly 1% in crude oil and a decline in copper.

In fact, the entire precious metals’ complex was trading significantly higher even as perceptions of the global slowdown appeared to impact sentiment (and prices) across the board in base metals and certain other (wheat, for example) commodities.

The betting that the Fed will continue to ease in order to avert the possibility of a deeper contraction now appears to be front-and-center on certain trading floors and it is looking less like a blind bet than manifest certainty. This, with nearly three weeks to go before the Fed has its say in the matter and a week before US President Obama outlines his plans to resuscitate the very numbers that appear to be obsessing the spec trade this morning. But, hey, what are markets for, other than to pool a bunch of sentiment, and anticipation and translate them into price action?

Said action encompassed a $35 gain in the yellow metal this morning as the market opened for business in New York. Spot quotes on the bid side came in at $1,859.00 the ounce as against a greenback still trading at near 74.50 on the trade-weighted index and a 90-cent loss in black gold (to $88.04 a barrel).Silver added $0.99 per ounce and it opened at $42.49 on the bid-side.

Platinum advanced strongly, adding $22 to last night’s closing quote to open at $1,867.00 per ounce. Palladium also climbed; it was $8 higher at $788.00 the ounce. Total US auto sales did come in at a better-than-expected level last month; more than 1.07 million cars and trucks rolled off dealers’ lots in August as compared to the 997.5 thousand that did so one year ago the same month.

The much-awaited August non-farm payrolls came in at… drum roll… flat (as in: zilch) and the US jobless rate came in at… .another drum roll… unchanged (9.1%). The markets (at least in precious metals, as the Dow was still one hour from opening) immediately treated the figures with the implied conviction that they were bad enough to sway the Fed and prompt it into easing action.

As regards today’s Labor Department announcement on US job creation, it weighs perhaps more than even Jabba the Hut, and — at its worst level since September of 2010- it is looking equally repulsive. The news release puts that much more additional pressure and significance on the content of what Mr. Obama will be sharing with his nation in next week’s address. As things stand now, the White House projects a US unemployment rate at 8.2% for the coming year — the highest such number for an election year since F.D.R. ran for, and was successfully re-elected back in 1936.

Of course, much of the conviction being exhibited by speculators is shaped by the interpretation of what makes for a "good" or a "bad" employment figures harvest. For example, there seems to be little attention being paid to the fact that a good chunk of the "badness" of this morning’s data is attributable to the 46.000 Verizon workers who opted to strike last month, and who were counted into the final number, but are now back on the job.

As such, if one asks economists for example, the periodic jobs reports from the Labor Department have taken on an "aura" of importance that perhaps is not fully deserved. Worse, the data gathering process, the analysts’ interpretations and the actual hard essence of same are full of questionable aspects and may cast a dubious light on all the importance that markets appear to confer upon them. Marketwatch’s Greg Robb has dissected the reports and polled economists on the nuance of what the data (really) means at the end of the day. Finding: not a whole lot, actually.

To wit, the jobs reports are routinely revised, in arrears. That which one thought was a number etched in cold, hard stone turns out to be a mere suggestion of a figure, scribbled in the sand at the water’s edge. Poof! It is gone next month and revised sharply higher (or lower). Okay, then, make a bet or trade based on that level of accuracy. Furthermore, one and the same jobs report appears to contain conflicting components (unemployment and non-farm payrolls) that frequently go into divergent directions. Worst of all, there are allegations that the use of "birth-death" models to divine the headline jobs number is tantamount to "statistical quackery."

Market participants this morning also likely factored in a couple of other news items on the financial front as they bid bullion higher. Among them, a call by the ECB’s "shadow council" for the central bank to reverse its previous rate hike(s) and ensure that the Old World doesn’t head back into the contraction out of which it had appeared to be slowly and painfully extricating itself earlier in the year. Separately, some attention was also probably being paid to the story that the Fed has asked BofA to provide it with "contingency plans" on what it might do if conditions worsen for its business.

Since neither the Fed nor BofA spokesmen commented on the matter, we are left to guess a) what the Fed knows and/or b) what "worsening" conditions might imply. Suffice it to say, BofA shares fell 2.7% in pre-opening trade this morning. Not helping matters for financial-flavored equities (Citigroup shares fell 1%) were news that the FHA plans to sure more than a dozen large US banks on account of what they represented (or, rather, mis-represented) in connection with mortgage-backed securities before that most recent market bubble imploded.

On that tone set by labor conditions in the US, we go (at least those of you in the USA) into Labor Day mode and promise to see you on the other side of the long weekend. Most traders will be once again manning their battle stations as next week unfolds; look for added pop and sizzle in either direction — with a preview to come during today’s book-squaring rituals. But, before we let you go, one more quick glance at the divergent sentiments and projections present in the gold market, as relayed by Sharps Pixley, a London-based bullion house, to the media. East and West part ways? Consider the fact that:

"Western based news reporters seem broadly skeptical of the [gold] bull run (with questions centered on whether or not we are in a bubble) while reporters from the East are evidently not so. Nowhere is that divergence of thought quite so apparent than in the statistics that the markets are currently reporting. Bullion exchanges in both Hong Kong and Dubai have in the last couple of days both reported a doubling of average daily trade volumes in against the corresponding period a year ago.

Moreover, "gold sales in Shanghai have been red hot, while in Japan there has been a more Western style skepticism and some good selling reported. Here in London we have seen some good buying (typically from Asian clients) while significant volumes of ‘old gold’ (typically Krugerrands bought in the 1980’s) are coming back to the market, creating an interesting two way trade."

Not that the above is much different in how the market’s conflicted mood is shaping within the US itself. Just as there was a notable slowdown in gold ETF accumulations in the earlier part of the year despite soaring gold prices, there is also a divergence to be found in the US Mint’s statistics on gold Eagle coin sales; one that is not at all apparent if current headlines are the only ones taken into account.

While we are told that the Mint’s August sales were at their highest since January — a true statistic and one not in dispute — there has been little coverage of the fact that the year-to-date sales of one-ounce Eagle coins are off by some 16% vis a vis the 2010 numbers. Odd, but true.

Also true is the fact that total Eagle coin sales (all sizes) are also down for the eight months that have elapsed this year, and they are down by a not insignificant 3.55 tonnes (114,000 ounces) versus last year. As well, the 2011 year-to-date figures are off by over 20% compared to the panicky days of 2009. Could it be that — just as everywhere else apparently — the skeptics and the panicked ones are present on the scene at the same time? That finding would be the least surprising one of all time.

Have a pleasant weekend.

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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