Wednesday Kitcommentary – You’re NOT Fired!


Bullion BarsThe midweek trading session in New York opened with losses in all metals but gold this morning as the white and noble metals sank and the yellow one attempted to regain some lost footing in the wake of a further easing in the US dollar.

While spot gold did open with a $1.10 gain and was quoted at $1,538.20 on the bid-side, as against a 0.19 drop in the greenback on the trade-weighted index, silver slipped yet another 64 cents to open at the $41.02 mark (after having touched $40.26 overnight — fully $10 under last Friday’s high water mark in values).

The legacy of raised margin requirements and further long liquidations was obvious in the silver market as the white metal underwent its largest two-day drop in three years and once again made headlines; this time about its precipitous decline. None of this should come as a surprise for the precious metal is notoriously volatile and can exhibit patterns such as the 38% spike it has enjoyed thus far this year, or the 78% free-fall it endured following its top in 1980. Monday night’s 12% decline only served as a reminder that silver retains the title of being the most volatile asset one may include in an asset basket.

Someone’s asset basket became a bit…lighter on metals, if the reports by the Wall Street Journal turn out to be accurate. Despite the lack of direct confirmation by the offices of George Soros and John Burbank, their Soros Fund Management and Passport Capital entities are seen as having scaled back on precious metals positions following recent record values having been on display in these markets. As has been the tradition, the small, retail investor got interested in and piled into the market right near the most recent price pinnacles.

No word yet on whether Paulson-owned funds decided that the six-fold and twelve-fold gains in gold and silver since the start of the new millennium have prompted them to also lighten up on such positions. Standard Bank (SA) snapshot market analysis tendered this morning opines that the Soros Fund may have sold "much" of its gold and silver holdings and notes that recent CFTC data indicates that "sentiment towards gold, and especially silver, appears to be souring." Not to call it top-calling (since that is deemed as "nutty" behavior by some), but there are some such as Paul Duncombe, head of Schroder Investment Management, who characterize the current "risk-on" trade as coming to a potential "conclusion" just as soon as rates begin to rise.

Platinum and palladium both opened with an $11 per ounce loss this morning, with the former being quoted at $1,842.00 the ounce and the latter being bid at $761.00 per troy ounce. Light profit-taking was visible among funds and in the ETF niche. The noble metals’ complex appeared to disregard the robust sales growth reports coming from all three major US automakers for the month of April. GM sales rose by 26%, Ford Motor Co.’s gained 16% and Chrysler’s were up by 22%.

Japanese auto firm Toyota’ sales were, unsurprisingly tallied with a gain of only 1.3% last month as the March Sendai quake took its toll on supplies of vehicles sent to the US for sale. Other Japanese nameplates were also impacted sales-wise last month. Meanwhile, BMW AG group’s profits climbed to $1.78 billion, a figure that is triple that of what was reported one year ago.

The automotive space continues to show improvement and buoyancy across the globe. In the medium-term, and inevitable sympathetic (with gold and silver) corrections notwithstanding, that type of sales and profit-related news could be beneficial to platinum, palladium, and rhodium. It clearly means that buyers are hopping into shiny new conveyances (while opting for fuel-efficient ones, to be sure) at a good clip, and not just in the BRIC countries. Rhodium remained unchanged this morning, quoted at $2,130.00 per troy ounce in New York.

However, not everyone is on-board with the cloudless outlook for the automotive niche — at least not as regards the upcoming summer period in sales. Chief Executive Jeremy Anwyl of notes that "while the top-line numbers of April car sales look healthy, a deeper look shows that the industry is already experiencing a downward slide." Some analysts foresee a pause in auto sales activity until near the fall, as the effects of the supply-chain upheavals from Japan take their toll. GM’s head of sales, Mr. Don Johnson feels that, as regards car sales, "the [seasonally adjusted annual rate] running a little bit below its projected trend line in the second and the third quarters but then turning around and running above expectations in the fourth quarter as the industry output recovers."

In related news, crude oil values declined a tad further, losing from 20 to 40 cents per barrel and were seen hovering near the $111 mark as regards WTI prices. It was, nevertheless, the third day of declines in black gold, and the drop came amid reports that US crude stockpiles are on the rise once again. The Osama bin Laden "neutralization" news appears to be playing a lesser and lesser role in this market, really since the time it first broke.

In other market-impactful developments, the private payrolls report provided by ADP indicated that 179,000 jobs have been added to the US economy in April. Whilst that figure is relatively near to the average of 196,000 monthly additions recorded during the first four months of 2011, it is still the lowest such gain in the monthly job creation level since last November. The ADP report swiftly took the US dollar somewhat lower still on the trade-weighted index as of the mid-morning hour in New York and managed to turn gold slightly higher as well.

Sluggish US job creation levels notwithstanding there is scope for optimism on the American labor front. An important metric-that of firings and planned job cuts by US employers shows that the situation is clearly improving for this all-important component in the economy. Year-to-date, US employers have announced 24% fewer layoffs than were in place at the same time year. The tally comes courtesy of global outplacement firm Challenger. The Challenger report concludes that 12% fewer firings took place last month; a figure that represents this year’s low and the third lowest one over the past year and a half or so.

The markets’ focus now shifts to Friday’s nonfarm payroll figures and what they might reveal. In the interim, however, players will be bracing for any signs as to whether the ECB might continue with its rate-hiking campaign (the next such adjustment could be due as early as in June) or pause for a while as it digests the effects of its recent lifting- the first in many months. Perceptions that the former is more likely have been providing momentum for the euro while the dollar has not been able to mount a sufficient amount of short-covering as yet. Reverberations of last week’s Bernanke press conference continue to be felt in the greenback’s trade but the hefty short positions in it leave the possibility of short-covering rallies quite high.

Meanwhile, the incessant fear-mongering about the US currency continues unabated — usually in concert with a gold or silver commercial in tow — on various financial channels and radio talk shows. It is all the rage to predict a zero-value US dollar and all the trouble that such a collapse would bring. There is, however, another school of thought on matters US dollar-related.

One of the oft-bandied-about allegations in the hard money blogosphere is the scenario whereby China becomes disgusted with the US dollar and suddenly "dumps" its vast holdings thereof. Fundmastery blogger Kurt Brouwer has another idea, however. That is, that neither the US dollar, not the US economy would collapse at all, were such a highly unlikely event come to pass. Marketwatch’s Jonathan Burton interviewed Mr. Brouwer just yesterday, and this video is extremely well-worth a viewing amid all of the dollar-obituary assurances on display out there.

Just as we reported yesterday that a Fed hawk (Mr. Hoenig) feels that the Fed ought to hike rates any time now, here is the opposite take, on tap today, from Boston Fed President Eric Rosengren. Ah, yes, the battle of the hawks and doves rolls on, unabated. So, on the other hand, does the battle of the bulls and the bears in the commodity space. Take your seats. Enjoy the spectacle.

Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and

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