Thursday Kitcommentary: The Quarter That Gave No Quarter


Bullion BarsThe EU drew one step closer to hiking interest rates when it meets one week from today, as an unexpected rise in regional inflation rates virtually guaranteed that the ECB’s policymaking decision will not let rates remain where they are. Although markets have largely priced such a tightening into the equation, the euro got a boost from this morning’s data and set the US dollar on a slippery slope towards lower levels (under 76.00) on the trade-weighted index. That slippage, in turn, revived the bull camp in precious metals and sent gold prices back towards the high $1,430’s area within the first hour of trading.

Spot gold opened near the $1,430 mark and subsequently traded as high as $1,440.80 on the offer side. In the broader trading framework, resistance is still pegged at last week’s peak just above the $1,448.00 mark while support is seen at levels nearing the $1,400.00 round figure. The yellow metal is on course to finish the first trimester with an approximately 3.5% gain.

Then again, underscoring the "buy everything" attitude that prevailed once again among investors during the quarter, the DOW is on course to likely cross the finish line with a 6.7% gain on the trimester. What’s wrong with that picture? Pretty much everything that involves conventional thought in terms of historical correlations.

Silver traded near $37.75 at NY opening time but subsequently retreated to the near-mid-$37.00 level as the advance ran out of fresh speculative steam. Still, silver could finish Q1 with a better than 22% gain, underscoring the intense speculative attention it has been receiving. The Elliott Wave-based ‘must-not-cross-or-we’re-headed-higher’ price markers in the white metal are currently pegged at $38.21 and then at $38.47, while a breach of the $36.41 could portend a targeting of the $33.54 price level (and then lower). Platinum has risen 1.3% on the quarter, while palladium could be set for a 3% loss for the period.

Platinum and palladium each basically retained $9 worth of advances for most of the morning session; the former rose to $1,772.00 and the latter climbed to $760.00 per troy ounce. Speculators appeared to ignore the finding that analysts expect tomorrow’s US auto sales figures to show their first monthly decline in seven (largely on the back of the highest gasoline values in circa two years’ time).

The greenback was held down by the aforementioned advance in the European common currency, but also by a hefty gain recorded in the value of crude oil (at last check, it was up by nearly $2 per barrel, rising past the $106 mark) and certain agricultural commodities. This morning’s drop in US initial jobless claims filings was not helpful to the US currency as the report also contained an upward revision of previous figures. A slight decline in the Chicago Purchasing Managers’ Index for March and a drop of 0.1% in US factory orders also contributed to keeping the dollar on the defensive today.

A frightful first quarter concludes today, but without any concrete resolutions to the dramatic natural, economic, and political events that have defined it. Japan continues to grapple with the aftermath of the triple disaster that began on the 11th of the month, Libya remains mired in attacks and counterattacks between its opposing forces while NATO has taken command of the external military intervention, and certain parts of the EU appear as fragile as ever, roughly one year after Greece’s fiscal problems have first brought the acronym "PIIGS" into the world’s financial vocabulary.

Such events have rattled the nerves of global investors, who, in turn, set out to roil the markets as they hung on to every fresh news development while trying to remain safe from all types of perceived harm. Safe-haven assets obviously benefited from the upheavals, even as some of them were lifted to values far higher than their underlying fundamentals might provide for. But, at the end of the day (make that of the quarter), the initial uncertainties and apprehensions related to these serious occurrences have been replaced by some certainty.

There is acceptance of the terrible human and economic toll of the Japanese quake, and there is the conviction that the country will get itself back on track. There is a path that the UN, NATO, and allied forces under its command are headed down upon, and it stops with the ouster of Col. Gaddafi. His Prime Minister decided to "cut his losses" when he resigned and defected to the UK yesterday. Finally, there is a growing realization that EU is not exactly synonymous with the euro, and that EU membership (or the lack thereof for that matter) does not define the destiny of any particular country.

PIIGS can, indeed, fly, and they can fly away from the union, if they have to. A multi-tier union, based on deficit levels of countries to be included within such divisions is not out of the realm of possibility. However, none of the above portends the imminent or subsequent TEOTWAWKI that doomsday-oriented financial publications have offered their readers during the past 90 or so days.

An offer of a different type was made by US Treasury Secretary Geithner on the eve of the G-20 summit taking place in Nanjing, China. Mr. Geithner proposed that the easing of controls on currency exchange rates and the aiming towards more market oriented policies by various nations could be the key ingredients in the combat against inflation. While on the surface the suggestions sound constructive, certain Chinese officials have construed them as thinly veiled pot-shots at China’s currency control regime.

Meanwhile on Mr. Geithner’s home turf, the pace of economic growth appears to now be even more robust than was previously estimated. This has taken place despite the still-sluggish pace of job additions (which continues to obsess the Fed and the Obama administration). In fact, when the growth metric is applied to the major global economies, it turns out that that of the US has outpaced the UK’s, France’s, Germany’s, Italy’s and Japan’s. America’s economy only (and slightly) underperformed that of the Great White North. Bob and Doug are very happy.

The explanation for the American recovery phenomenon partly lies in the sharply higher productivity rates currently being manifested by the American workforce. Mind you, "productivity" is not what everyone calls the situation. Some label it as plain old fear that once a job is gone, it may be very hard to get another one.

Thus, pedaling harder at one’s existing job (and counting one’s blessings while toiling away on weekends and through other overtime) has become the new ‘normal’. As a result, and contrary to economists’ expectations (based on historical as well as comparative data from other countries), US productivity growth has doubled from 2008 to 2009 and then, it…doubled again, in 2010, as measured by the OECD.

Until tomorrow, back to the job at hand: watching it all gyrating and churning.

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and

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