In The Lead – Sing To Me Of (Strange) Love

by Jon Nadler, Kitco Metals Inc. on November 3, 2011 · 0 comments

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Precious Metals CommentaryGreece’s referendum odyssey took yet another turn after the country’s finance minister came out in opposition to the plan to link its EU membership to the possible referendum on the bailout deal. PM Papandreou, facing internal strife and the pressure from the "Merkozy" team (they summoned him to a meeting that sounded more like an "interview" in Guantanamo) traveled to Cannes to face some pretty somber "music" while he is visibly losing support and may yet witness the ouster of his ruling Socialist party.

For its part, team "Merkozy" has made it crystal clear to Greece that the sixth tranche (8 billion euros) of aid from the EU will be shelved and that it will not find its way to Athens if these kinds of games continue. A de facto ultimatum has been placed in front of Mr. Papanderou; one that starts with "1. Make up your mind," (or we might just make it up for you). The previously unmentionable has already been mentioned: jettisoning Greece from the union. No pressure, George, no pressure.

Pressure, on the other hand, remains very much at the "intense" level for Mr. Berlusconi to call it quits and make way for an interim Italian government. Six of the country’s former parliamentary loyalists have rebelled and are calling for a "new political phase and a new government" in the country. Mr. Berlusconi has defied similar "please step aside" calls from business leaders, bankers, labor unions, his own party, and (hey, this is Italy, after all) the…Church (!).

Not that there is no good news to report as regards Mr. B at this juncture. Yes, it turns out that the crisis in Europe has prevented the former cruise ship crooner (seen here doing his own Sinatra imitation) to release his fourth album full of torrid love songs. We kid you not. The "True Love" CD will now not be hitting the charts until at least November 22nd whereas it had been planned to do so back in September.

Consider your ears to be lucky for another three weeks, at least. With lyrics such as these "Tell me it doesn’t end here, that you don’t want to throw away our strange love like this. Tell me you’ll come back to me with no more bitter words, let me win your heart" perhaps very lucky.

At any rate, Berlusconi should have spent less time rehearsing his amorous chirpings and might have focused on fixing that which ails Italy at the moment. He is reported to arrive to the G-20 summit in Cannes "empty-handed." Nice.

Photo courtesy AP

The on-again/off-again Greek referendum and related news kept markets churning during the evening and overnight hours. Confusion reigned supreme as market players tried to position themselves in vain since the next batch of news proved them wrong several times. Gold prices fell by more than $10 then jumped by $20 reflecting the indecision patterns among players trying to digest the headlines from Athens and Cannes.

No indecision on the part of the ECB this morning. As we alluded to in yesterday’s video "In the Lead" a rate cut ushered in the reign of Mario Draghi at Europe’s central bank. Conditions in the region’s economy have eroded to the point where they may safely be labeled as "contractive" (not to use the word "recession") at the moment. It remains to be seen how the surprise move will affect the common currency, the US dollar, and other market goings-on.

Thus far, the stock markets have reacted with joy over in Europe (3%+ gains in the DAX) and the Dow jumped more than 100 points in the initial minutes of today’s trading. Someone who did not yet react, or act for that matter, is China. The country is now waiting to see how the Greek mess is sorted out before it throws money at the European rescue fund. China as well was thrown for a loop by the proposed referendum in Greece and is thus playing this one with characteristic caution.

Metals prices received a further lift this morning as the turmoil in Europe diverted funds in their direction but the complex was still competing with what is apparently shaping up as a stock market rally of notable proportions on both sides of the Atlantic today. Ah, there’s nothing like a rate cut or the hint of more accommodation (See the Bernanke press conference) to stoke the crowd that has been injecting itself with the "easy money" opiate for circa three years now. The "buy everything!" syndrome was thus in full swing this morning and it really does overshadow any excuses of the "safe-haven" type that some are trying to offer us all.

Spot dealings saw gold prices overcome the $1,750 resistance level and might offer the prospect of a try at the $1,775 wall as well. Yesterday we mentioned that silver production by global mines appears to be flowing quite freely at this juncture. Now, comes news that statistical firm GMFS (part of Thomson Reuters) is forecasting that gold mine output in the current year could touch the 2.800+ tonne mark and that such production of the yellow metal will continue to advance by some 2 to 4 percent per annum in coming years as well.

Those previous attempts (some coming from…mining firm execs, no less) to frighten investors with stories of "peak gold" may now safely be put to bed in the wake of four-digit gold prices. Such increases will add to the already existing surplus in the gold market and will put the onus squarely on the hedge funds and the ETFs out there to keep heavily absorbing the metal. Thus, the more important "peak" to observe with interest is not the one that was thought to reside in gold’s production; it would be "peak investment."

Silver moved in a $2 channel from $33 to $35 and is potentially coiling up for another volatile roller-coaster chart ride (see April, see September) as evidenced by its going into "red" price territory by the 10 o’clock hour today (after logging solid gains earlier). Small retail investors might wish to don safety helmets at this juncture.

Platinum advanced a sizeable $36 to near $1,640 and palladium jumped $19 towards the $675 value zone. Rhodium was unchanged at $1,650 while copper gained a modest 0.30% and crude oil climbed one buck to $93.50 the barrel. In the background, the US dollar narrowed its earlier losses and was trading at 76.89 on the trade-weighted index and at $1.376 against the euro.

US jobless claims declined to 397.000 (down 9.000 filings) in the latest reporting period while the figures from two weeks ago were revised upwards by 4.000 claims. Tomorrow’s Labor Department data will bring its own angle to the US jobs picture; one that Mr. Bernanke spent quite some time dwelling on at yesterday’s microphone session with the media.

Other than the mention of extended low rates and keeping a watchful eye on inflation and GDP, the Fed Chairman had little to add to the plain-vanilla FOMC statement that came out yesterday. No QE3 — "unless we need to launch it" was the operative stance. Oh, and let’s hope for no more ‘external’ shocks (Japan quake, EU unravel, etc.) that might derail our best-laid plans.

One recent analysis places the "Holy Grail" of "full US employment" some 12 years (!) down the road, if current levels of progress in reducing joblessness remain the order of the day on the jobs scene. In separate news, US business productivity rose by 3.1% in Q3 while unit-labor costs dropped by 2.4%. Such metrics would indicate potentially higher living standards for American workers (just don’t tell Mr. Romney such nonsense).

Speaking of the "job creators" it turns out that the US might well have a corporate tax rate of 35% on the books, but that many of America’s 280 largest firms pay nada/zip/zilch/zero or close to that in taxes. The average real tax rate paid by a long list of familiar corporate names in the US was 1.85%. How would you like to pay that rate, (or is that even a question worth asking)?

Until tomorrow, and even later, it will be Can-Cannes (do it?) time.

Jon Nadler

Jon Nadler
Senior Metals Analyst — Kitco Metals

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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