Take This Job and Keep It – Friday Kitcommentary


Bullion Bars

Gold’s worst losing streak since 2009 brought the yellow metal to lows near $1,355.00 per ounce overnight as fresh, aggressive selling decisively broke bullish sentiment ahead of the release of US unemployment data this morning.

The blame for the steep decline this week (a time when we were all but guaranteed the exact opposite) was laid squarely at the US dollar’s doorstep. However, as the numbers reveal, the greenback has already ‘visited’ levels such as the current, near-81 on the index mark, but gold had managed impressive climbing expeditions during such previous periods of dollar strength, due to safe-haven quests.

Thus, it must be assumed and, it might be later concluded, that a fair amount of gold came out of recently enriched spec fund hands as they reduced bullion allocations and perhaps opted to augment their exposure to equities instead. The small investor, of course, remains befuddled that the implosion and death of fiat currencies, the end European Union, or the unraveling of the USA has not come to pass. Such investors were recently ‘pressured’ into loading up on perhaps much more of the safe-haven metal than would be prudent according to portfolio allocation models such as those espoused by, say, the World Gold Council’s long-term studies.

The more things change, the more they remain eerily familiar, however. Some of the explanations (for this $70+ drop) being tendered to such shaken holders of the precious metal, sadly, are as fictional as they have ever been. They range from sinister price sabotage to absolute denial. Meanwhile, the loud urgings to ‘back up the truck’ are omnipresent, once again, replete with assurances of $50,000 per ounce gold to surely come, and no further material declines in its value, from now until the end of time. Oh, really?

The only active "suppression" manifest here is the one related to attempting to shield the investing public from the reality of a somewhat lessened demand for gold as a safe-haven safety-valve in the wake of improving global conditions. This, at a time when candid reporting needs say no more than what was expressed in this brief quote from Switzerland this morning:

"Demand from the safe-haven gold community is shrinking," said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. "In the short term, I expect that prices will weaken due to a stronger U.S. dollar."

A tad more…honest, no?

Once again, precious metals opened with broad losses and aggravated the technical (and sentiment) damage for a fifth day in succession. Spot gold prices shed $18.00 (1.3%) at the opening of the week’s final trading session, with a quoted bid price at the $1,352.00 level. Silver prices fell to lows near $28.32 (the $28 level is being watched very closely by many for signs of a more dramatic turn to lower value territory) and they opened with a 64-cent loss (2.2%) at $28.45 the ounce.

Platinum and palladium suffered from selling damage as well, with the former dropping $11 to the $1,715.00 mark on the bid-side, and the latter off by $20 (1.71%) and reaching the $740.00 level per ounce. Fund selling overcame good automotive news in the noble metals’ sector this morning. Carmaker Audi reported its’ highest ever sales in the US and in China, for the year that just concluded. Separately, and in other good news for PGM-group metals, Mercedes and Audi both plan to double their US diesel-engined US product offerings in an effort to combat hybrids offered by their Japanese rivals.

The reality, according to Bloomberg, is that "U.S. diesel car sales in 2009 surged 20-fold to nearly 160,000 vehicles, after chalking up about 8,000 deliveries in each of the previous two years, as availability of the German carmakers’ models using the fuel increased. The 2009 sales marked the first time since 1984 that more than 100,000 diesel passenger cars were sold in the U.S., according to data from U.S.-based market researcher Ward’s Automotive Group."

Back to another reality, as in: global economic conditions and their impact on investor behavior. We learned this morning that Germany’s rebound gathered steam in 2010, as evidenced by a 1.6% gain in retail sales (largest since 2004). Unemployment fell, consumer and business confidence both gained, with the latter rising to a record in December. The country’s exports rose 0.5% (less than expected for the month of November) but the overall economy grew at a 3.6% pace — that was the biggest such increase since the country reunified twenty years ago.

This brings us to this morning’s pivotal data set; the US employment (and/or unemployment, if you prefer) picture. This is the "trouble spot" that gave the Fed the impetus to embark on the "QE2.0" asset purchase program, and this is the one statistic that is most closely being watched at the moment in the quest for signs that the US economy is really back on a straight and smooth(er) track. Economists have opined that several months of job creation at or above the 200,000 mark would corroborate such a tack and once and for all lay to rest the double-dip and related jitters which have roiled markets in 2009 and part of 2010.

As things stood this morning, estimated offered prior to the Labor Department’s release centered around the 150,000 figure; good, but not yet the "Holy Grail" that is being sought by some economists/labor specialists. US jobs creation during 2010 ran at an average 92,000-ish per month, when all was said and done. Decent, but not sufficient for the Fed to take its foot off the monetary ‘gas pedal.’

Perhaps less important, but also on the radar this morning, was a potential decline in the general unemployment level from 9.8%. The data was set for release about an hour prior to Mr. Bernanke’s upcoming DC testimony. There was about as much suspense in the air ahead of its release, as there was back in November, when the Fed was set to launch (or not) QE2.0.

Here is what it ended up showing:

  • A sizeable drop in US unemployment to 9.4%. We say ‘sizeable’ as expectations had centered only on a possible 0.10% fall in same.
  • The jobless rate in the US fell to its lowest level since May of 2009.
  • The US economy added 103,000 jobs in December. That was (as mentioned above) still less than had been expected and/or desirable.

The lower level of jobs being created (still near last year’s monthly average levels) gave bullion prices a much-needed mini-boost, following the days of incessant selling it had experienced for most of this week. The US dollar declined a tad (0.10) on the index (to 80.85) following the news from the Labor Department. Whether or not the labor statistics will provide sufficient fuel for the bulls to reignite their stampedes in commodities remains to be seen. Certainly, it ought to be the focus for the coming week. There is a lot of patching up to be done. 11 out of 20 Bloomberg-surveyed market analysts think it might not take place. We will be here to report such events whether they occur, or not.

Have a very pleasant weekend, everyone.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America

www.kitco.com and www.kitco.cn
Blog: http://www.kitco.com/ind/index.html#nadler

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