Thank You, Ben
By Jon Nadler Printer Friendly Version
Jan 10 2008 2:03PM
www.kitco.com
Good Afternoon,
A day of early losses turned into a day of strong gains and new records for gold, amid the realization that the Fed has finally said "I give" to the demands of not only the street, but of politicians as well. Anything that has to be done to avoid the recession that is either coming or already in progress, will be done. The markets are now fully expecting (and showing a pricing-in of) a half-point cut in interest rates in three weeks' time. If there was any hesitation in the early hours of trading, due to a slipping oil price and some dollar strength after the BoE and ECB stood firm on rates, it all evaporated after Mr. Bernanke spoke of the necessity of additional "policy easing."
Although New York gold closed about $5 away from the intra-day high of $895.60 that was recorded in the post-Bernanke speech euphoria moments, it notched yet another all-time record to the roster it opened at the beginning of the new year. Spot prices settled up $11.60, at $890.90 bid and showed no signs of getting ready for a profit-taking pause until the $900 level is achieved one way or the other.
The $1.55 drop in oil (to $94.13) took a back seat to the cave-in on the dollar index - which showed 75.90 as of the last tick we observed. Silver added a surprising 43 cents to vault over $16 and closed at $16.15 despite the pause that a slowing economy must give to those who expect robust demand for the white metal. Perhaps investment demand can fill the gap at this juncture. Platinum rose $2 to finish at $1552.00 per ounce. The Dow did show a 40-point gain, but we wonder where the 300 point rally type of move we saw in the fall is today...Maybe there is something to worry about, economically speaking. And, maybe, this is an election year...
The UN opined yesterday that not only will the US economy undergo the classic definition of a recession this year, but that the global economy (yes, including China and Euroland) will be dragged right down with it in, a generalized global slowdown. Such a scenario would necessarily impact base and precious metals demand - at least in its initial stages and perhaps beyond as well. We are not familiar with the track record of UN economic forecasts. Just reporting its opinion.
On the other hand, yesterday, we did mention the fact that Goldman Sachs feels that the US will only go through a shallow contractive phase, "recession-light." We cannot disagree too much, as evidence points to a series of recessions that have gotten shorter and shallower over time. The US may avoid the dreaded negative GDP period, but may have to contend with growth rates between 1 and 2 percent until the situation improves, circa year-end or so.
Worried about energy-induced inflation?
You might follow Jim Rogers and pack your bags for China. Someone has apparently figured out one way of dealing with the issue... Forbes.com reports this morning that:
"At an executive meeting chaired by Premier Wen Jiabao on Wednesday, the State Council imposed caps on energy prices, and also directed that businesses producing general necessities should register with local authorities if they wish to raise prices.
"Prices of gasoline, natural gas and electricity shall not be adjusted in the near future, and charges for gas, water, heating, public transport in cities, and school tuition fees shall not be raised," the state newspaper China Daily reported, citing a statement released from the meeting. "Fees for medical treatment shall be stabilized. Prices of major fertilizers, such as carbamide and phosphate fertilizer, shall be kept steady too and can only be raised really because of cost increases and after being approved by the regulator," the statement said. "
Simple. Apply a nice dose of "Pricey-Freeze" and voila!
In an online poll conducted by the popular news portal QQ.com and China Youth Daily, 80% of 3,200 participants chose "cooling of inflation" as their top New Year's wish, beating out hopes for a successful Beijing Olympics, a better job, and higher investment returns."
Seems they have their priorities right, the Chinese. No need for central bank jawboning, messing around with interest rates, revving up the money-drop helicopters. Just say 'no more.' You may call that intervention on a grand scale if you like. We will not disagree. But then, go out and poll some average folks in the street and see which scenario they prefer.
In the interim, gold continues on the roller-coaster of euphoria and worry. Keep the hard-hats handy. Get used to the $25-wide type of swing we saw today - and to more. There are three weeks to go until the actual Fed meeting. It will be a very long and tumultuous three weeks. One question to certainly ponder, is: "What if it won't work?" Someone call a Chinese medic.
Best Regards,
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal |
