In The Lead – Hopetimism + Retail Therapy

by Jon Nadler, Kitco Metals Inc. on November 28, 2011 · 0 comments

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Precious Metals CommentaryMarkets breathed a concerted sigh of relief and rallied across the board, albeit it was hard to pinpoint what exactly the ‘relief’ was all about; especially when looking at the bond markets and corresponding yields out there. In a way, Monday’s jump in stocks and commodities was not unlike the situation in the retail sales sector on this Cyber Monday. Namely, an endless string of corporate executives appeared on CNBC and touted their ‘best sales ever’ and such, but hardly any one of them talked about profits.

The sentiment that propelled stocks and commodities this morning was equally focused purely on talk from Europe and not on concrete, bottom-line solution items to the crisis. It is extremely hard to place much faith in these type of snap-back rallies that simply try to shake of the previous fortnight’s worth of the blues but do not appear to have the ‘mojo’ to follow through and result in long-lasting trends. On CNBC, Larry Kudlow warned that these rallies would fizzle out the ‘instant some bad news flows out of Europe.’

All of the above was predicated on the hunch — not any confirmation-that the IMF/ECB/someone, was going to take steps to ease the crunch in Europe. EU finance ministers meet (again!) this week amid total skepticism that the region’s policy makers have what it takes to cope with this challenge that has seen the levels of confidence in their sovereign debt market vanish almost totally. The IMF has denied having held any discussions with Italy regarding any kind of a rescue package or a 600 billion euro loan.

However, despite such ‘hopetimistic’ rumors, several banks and trading institutions have begun to price in the so-called ‘endgame’ for the euro in their calculations going forward. Moody’s has once again (surprise!) warned about European debt and it feels that the odds of sovereign defaults are no longer ‘negligible’ given the current situation.

Currency market analysts have offered alternatives such as almost the entire Scandinavian currency bloc and the Japanese yen to investors worried about holding euro banknotes that may or may not be around a year from now. Buy creditor nations’ currencies, they advise. However, they are not equally quick to dismiss the dollar from the list of alternative-to-the-euro holdings that one might consider, and neither have investors, as we have seen lately.

As they say, if it’s Tuesday, it must be Belgium — and that is just what/where it will be tomorrow; make/break talking day in Brussels. Italy will once again in focus as market players figure that the leaders on the continent will offer some broad(er) measures to try to contain the crisis that has ravaged bonds and the common currency of late. Italy is seeking some 8 billion euros’ worth of ‘salvation’ as it hopes to move some bonds shortly. Meanwhile, the OECD opines that the EU region is already in a ‘mild’ recession and that it will (if lucky) grow by only 0.2% in the coming year.

The same OECD also notes that the global economic recovery is ‘petering out’ and that there is a risk of contraction even to the hitherto decently recovering US economy. The organization pegs 2012 global growth to come in at perhaps 3.4% after this year’s 3.8% pace. It also believes that only the ECB has the ammo necessary to contain the EU debt crisis and that the Fed may have fired off all of its useful stimulus bullets already. The sunniest of economic skies in the opinion of the OECD will likely be seen only in Japan next year as the country rebounds from the devastating natural disaster it suffered in March.

Precious metals were definitely in the ‘thick’ of the aforementioned ‘buy everything!’ storm of sentiment and short-covering panic this morning and obviously benefited from it as well. Gold traded above the $1,700 mark as early as last night and touched highs near $1,722 earlier in the Monday session. Silver recaptured the $32 level with a $1.20+ leap to higher ground. Platinum and palladium each bounced more than $20 higher and reached the $1,550 and the $583 levels respectively. Trend followers, rejoice; the 30-day loss in the yellow metal has fallen to under 2%.

Then again, note the $1.50 jump in crude oil, the 310-point pop in the Dow, and the 3% vault in copper prices. "Cyber" Monday, indeed. After all, why just buy your copper colored L.L.Bean fishing sunglasses online when you can load up on a bunch of actual copper (contracts) at the same time, as a result of news that L.L. Bean’s and other US retailers’ holiday sales are at a possible record high? Then again, following eleven days of a deep funk, the US equity markets were due for at least one day of some relief rally, Europe notwithstanding (but US retail sales very much withstanding).

Last week witnessed more additions to gold ETFs (but less than half of what had been piled on in the previous week) and some renewed ‘leakage’ from silver ETFs (to the tune of more than 185 tonnes) that had grown slightly in previous weeks. Standard Bank analysts remarked that: "once again, it appears that ETFs remain cautious on silver, if not outright bearish."

As for gold, Commerzbank observers note that it "is currently continuing to behave more like a risky asset than a safe-haven in times of crisis" and that "this is attributable to the behavior of futures-market players." Couldn’t have said it better ourselves. Actually, long-time market watcher Ned Schmidt did say it even better this weekend in his latest "Trading Thoughts" missive:

"[The] driving force for gold, silver, stock markets, and the madness in the currency markets has been primarily speculative funds in the US." Is it not rather odd that we have the most intense phase of the European crisis, that we have the near-possible demise of one major ‘fiat’ currency on the odds table, and that we have the perfect safe-haven-friendly financial storm, and gold is trading like just so many stocks and other risk assets? Let the head scratching continue…

Those of us still scratching our heads over the eventual outcome of South Africa’s mine nationalization may have to keep our fingers and scalps busy for some time to come yet. As of today, the ANC has sent back a report on such policy recommendations to the drafting table for a second try. The uncertainty is sure to keep investors jittery and reluctant to make specific money moves in this space.

At issue is not the content of the document, says the ANC; it is the ‘style’ and readability (!). Literally, the ANC wants a final draft on these momentous changes to come to be readable by a member of the ANC and not a "professor." And thus, we will all be kept waiting until the middle of next year, apparently. Grammar Girl, anyone?

Spell-checks complete, we dive back into the San Francisco Hard Assets Conference for some more face-time with the investing public.

As tomorrow is a travel day we bid you goodbye until Wednesday morning…

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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