Cin-Cin! Win-Win! – Monday Kitcommentary


Bullion Bars

New Year’s Eve (likely) champagne-induced cheer morphed into unimpaired optimism as the first financial market sessions of 2011 opened for trading overnight and this morning. The apparent "resolutions" among investors, at least at this early stage of the annual yield-chasing game, are ones of…adding weight — to the profit side of their asset books, that is.

While many central banks (and bankers) are still on holiday hiatus, and there has been very little in the way of hard economic news to bite into thus far, the action in the equity and commodity markets has been lively and mostly to the upside in early going. However, with most European and Asian metals traders still out tending to their reveillon "after-effects" the Monday action might best be viewed within the context of a ‘thinly-traded’ market, in the same fashion as were the last few sessions of 2010. Read: not telling.

The upside potential (and the apparent testing thereof) was also manifest in this morning’s precious and noble metals opening quotes. Spot gold bullion commenced trading at $1,423.30 per ounce, showing a $0.50 gain that resulted from physical buyers offsetting the 0.12% rise in the US dollar index taking place in parallel. A potential trend-change could be indicated by the 14% drop in US gold coin sales in 2010, even as sales of silver ones rose by 20%. In December, however, sales of both yellow and white metal coins fell sharply.

Chalking it (the drop in sales) up to statistical and year-end "variations" may not be enough, this time around. Sixty thousand gold coins sold in December (as against 231,500 in December of 2009) may be more indicative of the waning appetite for safe-haven protection in the States. Other mints however, (Austria’s among them) also reported lower 2010 demand as that (the crisis) which was supposed to drag the world into the abyss in late 2009 failed to show up to the party last year.

Gold turned negative (it was down by some $4) shortly after its opening, as some hesitation resurfaced among the specs regarding the coexistence prospects of a further rising dollar and the yellow metal, and as more speculators opted to skim a modicum of profits off of a metal now trading at within some $15 of its highest ever price peak.

Silver offered a more "robust" gain, climbing 27 cents to open at $31.18 on the bid-side. Over in the PGM pits, platinum showed a rise of $11 per ounce, starting Monday’s session off at $1,780.00 per troy ounce while palladium rose a modest $1 to open at $801 the ounce. Rhodium indications showed no change and were quoting the metal at $2,380.00 per ounce.

Carmaker VW extended its CEO’s tenure by five more years, indicating that it intends not only to complete its merger with Porsche, but also that it remains committed to surpassing Toyota as the planet’s biggest carmaker. As for the US, it is widely expected that car sales will once again show a rise when December’s tally comes in tomorrow.

Such a gain in sales might carry the US automotive sector back to its first yearly increase since 2005, and could show a total sales level of some 12.3 million units. It could also boost the prospects for additional gains in the noble metals’ niche. Palladium (our favorite ‘horse’ last year) handily won the 2010 ‘contest’ among precious metals, with a doubling in value when the finish line was crossed last Friday.

Copper and oil perhaps best reflected the aforementioned New Year optimism levels. The former gained 1.84% and the latter floated 0.70% higher to begin 2011 above the $92.00 per barrel mark. Black gold’s top prognosticators are envisioning a third year of gains in the commodity, as –in their projections- China continues to lead the world out of its recent contractive phase. Thus, the headlines of "$100 Oil Inevitable In 2011" we ran across this morning. At least, that’s the ‘plan…’ Then again, according to another headline, 2011 is likely to be "The Year Of The Stock." Okay. "January Effect" or the effect of confetti and noisemakers still littering the floors of more than just certain ballrooms? That remains to be seen.

Some of the bullishness and risk-taking behavior was (oddly, for commodities, at least) a result of perceptions (borne out by certain November statistics) that China’s economy is, in fact, "cooling." The slowdown muted some of the apprehensions related to Chinese ‘overheating’ and the related interest rate hikes that would result from such a trend. US ISM figures are on tap for later today, as is the tally on construction spending in the US for the month of November. There will be more statistical "red meat" to slice up in coming days, when the US reports factory orders and vehicle sales (tomorrow), followed by the ISM service sector tally (Wednesday) and finally, the all-important jobless claims/nonfarm payrolls/unemployment rate trio due out on Thursday and on Friday of this week.

As far as the US is concerned, it turns out that the bond vigilantes might possibly have to take their assault campaigns elsewhere, for the time being, at least. Contrary to ‘conventional doomsayer wisdom’ the trend underway since Q2 of 2010 in the US reveals that American economic growth is trumping the anxiety that the country’s deficits will keep its buyers of debt at several arms’ lengths. See the US dollar, see the worst performance of Treasuries since Q2 of 2010, see the price of CDS instruments linked to US debt for evidence that the bond vigilantes have gotten that (conventional wisdom) one wrong thus far.

The few bits of economic data that did see the light of day on Monday were relatively positive however. European manufacturing expanded at a faster-than-anticipated pace in December, led once again by a robust showing (60.7) in Germany. Sweden has shown outstanding (make that: record) economic growth of late, while Italian figures for manufacturing PMI gained as well. However, Greece and France did not contribute to the rising tide in such activity and noted declines instead.

That said, the euro started 2011’s trading with a decline — albeit a marginal one — to the 1.334 level and continued to exhibit some of the somber tenor with which it rang out the old year. A Sunday article in The Telegraph opined that the region’s debt market could experience DC2 (debt-crisis II) in coming months. Meanwhile, fiat currency morticians have all but guaranteed everyone a total demise of all paper monies for this year, even though it might have been more prudent to wrap such an event into the more ‘major’ end-of-world crisis that is supposed to finish off the planet in late 2012.

Perhaps the New Year’s resolution that might be best remembered 360-plus days from now might very well be the one crafted by Chinese Vice-Premier Li Keqiang just hours ago; it focuses on Spain, but the motto has global overtones, to be sure. It declares: "China and Spain: A brighter future through win-win cooperation." Hardly the vision of a collapsing Europe (and world), that.

Deep within the VP’s speech text one finds a very specific passage regarding debt (of the Spanish variety, at least) and China’s commitment to keep buying the same. Could the Vice-Premier have been clearer? Hardly:

"China is a responsible long-term investor, both in the European financial market and in the Spanish financial market. China has confidence in Spain’s financial market. It has purchased Spanish Treasury bonds and will buy still more."

"Win-Win." Who does not like the sound of that? Even if it is resurrected some twenty years later?

Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and

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