In The Lead – Fedsday Cometh! Plus, More Sci-Fi!


Bullion BarsThe largely sideways action continued to be manifest in the precious metals markets for a third session, ahead of the Fed’s policy statement and Bernanke press conference due later today.

While no one expects momentous action words to be contained in today’s Fed language (no imminent rate hikes but also no QE3 are already baked into current anticipations), the parsing of the content will still offer a sufficient amount of material upon which to make a trade of three, as well as related excuses to come later.

Greece and the apparently successful vote of confidence in PM Papandreou’s government by that country’s Parliament were placed on the "simmer" burner for the moment while all eyes and ears turned to the Fed for the day.

Naturally, as has been the case for several previous Fed meetings now, some will interpret the lack of certain QE3-flavored promises as bearish, while others will see the lack of rate hike signals as bullish. Of course, both sides will claim they are correct in their interpretations.

Little wonder then that CNBC previewed the day’s events by noting that "Federal Reserve Chairman Ben Bernanke is unlikely to announce a major change in monetary policy at his second-ever news conference later Wednesday, but investors will hang on his every word for clues on whether the Fed will scale back its presence in financial markets."

The midweek trading session in metals in New York opened with a firm… lack of conviction. Spot gold fell $2.20 to open at $1,545.00 the ounce, while silver lost 28 cents to start at $36.12 per ounce. Overnight lows were recorded at $1,540 and at $35.83 respectively. Still, the trading range in the yellow and the white metal was confined to less than $10 and to less than 75 cents ahead of "Fedsday." In the background, the US dollar was also just marking time at 74.74 on the trade-weighted index (up a tiny 0.05%) while crude oil eased by a further half a dollar to trade at $93.61 per barrel.

Platinum and palladium opened mixed-to-unchanged as players in that niche appeared to have headed out the door for an early summer hiatus. The former fell $3 to open at $1,744.00 while the latter gained $1 to start at $766.00 the ounce. No changes were seen in rhodium at $1.950.00 bid this morning. Automaker Daimler posted a robust comeback in 2010 and its executives are optimistic about the firm’s prospects for the current year.

The automotive crisis of 2009 (itself an outcome of the ‘other’ crisis) appears to be fading into history for Daimler at least, if Mercedes sales in China for example, are anything to go by. Potential obstacles to sales growth remain on the scene, in the form of the European debt situation, the soft-patch in the US economic picture and the effects of the Japanese quake in March. As well, the fact that China’s epoch of white-hot economic expansion may just possibly be coming to an end, ought to be weighed in making future projections — and not just by the automotive executives of the world.

Economist and author Richard Duncan notes that China has managed to avoid the recession felt elsewhere in the world only by rapidly boosting available credit.

Meanwhile, Mr. Duncan projects that China will be singled out by the U.S. and forced to stop growing its trade surplus … and that will be the death blow to China’s era of rapid economic growth."

Mr. Duncan sees a Chinese banking sector that is only starting to deal with the aftermath of the easy credit orgy of recent years.

Mr. Duncan is not alone in his assessment; Fitch’s Ratings just this morning raised the-redder-than-the-red-flags-in-Red-Square flag on China’s banks, warning that some of them might be looking at rather questionable loans on their books.

"We are pretty concerned about a big problem with bad debt over the next few years associated with local governments, property and all of the excesses that have been built up since the stimulus of 2008," said one senior official at the rating firm.

In the background, trading bets against the yuan have (not so quietly) risen in recent weeks…

Speaking of potentially declining and/or rising currencies, despite the ample dollar-obit talk still sloshing around in the ‘system’ out there, at least one firm opines that the greenback’s prospects look pretty decent as head towards the second half of this year. Morgan Stanley analysts feel that the US currency might trade at $1.36 against the euro and gain lost ground against commodity currencies as well (the Aussie and the loonie).

Morgan Stanley also envisions the US dollar reaching for $1.49 mark against the British pound, as structural issues in the UK dent that currency further. That said, MS is not so sure the dollar can sustain its projected near-term gains into 2012. There’s the matter of that pesky "fiscal sinkhole’ to consider, still. This is why the Fed keeps warning US lawmakers not to be playing around and dance the politics of the budget.

There are, of course, other politics to also consider from now through 2012… but they are still based mainly on economic conditions. While clearly less than a majority (44%) of Americans says they are worse off under the Obama administration, only 30% of them say they are willing to unequivocally support Mr. Obama’s re-election in 2012. The pattern of voter (dis)approval currently being experienced by Mr. Obama harks back to similar difficulties that one Mr. Reagan faced in his early Presidential career. The culprit at that time? You guessed it: a slowing economy.

Those who might be looking at alternatives to Mr. Obama are disappointed that his promises on jobs have not materialized. That said, do not jump to the conclusion that folks are enamored with the GOP or its current crop of would-be Presidents (or President-esses?). Fully 60% of polled Americans feel that any Republican candidate would more so far to the right of right on social and fiscal issues that they will become impossible to support in a Presidential bid.

And now, for something completely… educational. Much ado about nothing has been making the rounds in various gold forums and gold-sci-fi sites. Why, at first blush, any unsuspecting would-be or current gold investor would think that the End had arrived. The "US gumbint forbids gold and silver trading!" Whoa. Not so fast.

Fact:, a large retail foreign-exchange operation, on Friday told clients it will discontinue its gold and silver over-the-counter products marketed to retail investors who are U.S. residents. It asked investors to close their positions by July 15.

Fact: After July 15, commodities transactions between retail investors that are leveraged and not delivered in 28 days must be conducted in a "designated contract market," a board of trade or exchange designated by the CFTC, according to the new rules.

Fact: The National Futures Association asked Congress for such changes, due to numerous cases of fraud in such contracts. Doing business with a futures exchange offers retail investors more protections and transparency

Total fiction: "If you had any doubts about how far the elites would go to hurt and break the backs of middle class America, this new law should provide ample evidence that truth reporters are not just making this stuff up. The only possible reason I can see for making it literally "illegal" to trade gold and silver over the counter is that trading in precious metals has been keeping millions of American households financially afloat when just about every hard asset they own, including their home mortgage, is now practically worthless." — source Chase from Alternative News Report

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America and

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