The Daily Resource 10.10.08
The Daily Resource 10/10/08:
Good morning …
Gold was lower in the far East on Thursday, traded tightly rangebound between $880 and $890 through London and the COMEX, then rocketed upward during the Globex as the equities markets tanked, adding over $40 before easing into a finish at $912.40, up $5.90. Overnight, gold is trending higher.
Platinum was sharply higher in Europe, but traded listlessly through the New York day, ending at $1036/oz., up $36. Overnight, platinum has fallen off.
Silver, down in the overseas markets, pushed to the $12 mark at noon, fell back 20 cents from there, but like gold was re-ignited during the Globex, climbing to close at $12.07/oz., up 29 cents. Overnight, silver is sharply lower. (Click here for charts)
Gold and silver both looked like they were headed for a red-numbered day until equities’ late crash, which turned them red hot instead.
While the stock market debacle likely contributed to gold’s successful day, the metal wound up running counter to the usual suspects, as the dollar strengthened against the euro and crude pulled back.
Looking strictly short term, even some gold bulls are exercising caution.
Zachary Oxman, of Wisdom Financial warns that gold is “an actively traded instrument and I'd be wary of taking positions in either direction for days to weeks at a time … It's just too volatile.”
But the long term may not be far away.
“Both technically and fundamentally, gold is looking as good as it has ever done and prices are set to surge in the coming months,” said Mark O'Byrne, a director at Gold and Silver Investments Ltd. “There will soon be fireworks in these markets and a price surge akin to that seen in the late 1970s.”
Gold is also going to be driven by supply issues, BlackRock Investment’s Graham Birch contends. “The depletion rate of gold mines exceeds the rate of gold mines being developed … We cannot see an increase in aggregate world gold production,” Birch says.
And Barclays Capital analysts said that gold prices could exceed $1,000 an ounce within the next few months, as investors dump other commodities on fears of a global economic meltdown.
In the currency market, the dollar pushed higher against the euro. Late Thursday, the euro was trading at $1.3594 vs. $1.3672 on Wednesday.
The dollar advanced even as equities markets fell off a cliff, with the Dow suffering its third-largest daily point drop ever exactly one year after reaching its alltime peak.
Traders were unmoved by Treasury Secretary Paulson, who said in a Wednesday speech that he is actively considering injecting capital directly into banks, a power granted to him by the new bailout bill.
That cemented several days of talk by Bush administration officials about the possibility of taking ownership stakes in a number of banks. While much of the publicity during the bailout debate focused on the proposal to remove toxic mortgage assets from bank balance sheets through auction strategies, many economists were lobbying for a capital injection plan instead, arguing that the money could be put to work quickly to restore bank balance sheets and encourage lending.
Wrote Kathy Lien, director of currency research at GFT: “In theory this announcement should give banks the peace of mind to start lending as a direct capital injection from the U.S. government should reduce the risk of counterparty failure.”
However, “The Treasury would not start taking equity stakes until the end of the month while the $700 billion bailout plan has yet to be up and running. The market wants a fix now and not three weeks later. Between now and the end of the month, liquidity could evaporate,” Lien added.
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In the energy market Thursday, crude for November delivery declined to its low point for the year, closing at $86.59/barrel, down $2.36. November reformulated gasoline was off fractionally, to $2.0273/gallon.
“As long as the fears of a wholesale global economic meltdown are the headlines for the market, energy prices should continue pulling back,” wrote Neal Ryan, of Ryan Oil & Gas Partners.
And “should these headlines persist, I think we'll have OPEC stepping up to the mike to announce major supply cutbacks in the coming month or two as they don't want a repeat of the early [19]80s price crash,” Ryan added.
OPEC released a statement yesterday in which it said that the cartel will hold an “extraordinary” meeting on November 18 in Vienna, to “discuss the global financial crisis, the world economic situation and the impacts on the oil market.”
But analysts at Eurasia Group noted that Saudi Arabia will need to bring its own actual production down to its quota of 9.1 million barrels per day before the meeting, if it intends to ask other members to make cuts.
The base metals were almost all in the black on Thursday. Copper got a pre-dawn bounce and traded higher for most of the day, finishing at $2.47/lb., up 6¾ cents. Nickel traded on both sides of the $5.80 mark, not straying far from it in either direction, and closing at $5.7818/lb., down 3 1/3 cents. Zinc came well off its highs, but clung to positive territory to end at $0.6465/lb., up nearly a penny and a half. Aluminum continued to hold up, adding just under a penny, to $1.0241/lb., while lead had a strong day for a change, gaining just under 3¼ cents, to $0.7406/lb.
Copper led most of the other industrial metals, as traders cast their first vote of approval for the coordinated multi-country interest rate cut that will, hopefully, stave off recession and boost demand.
Especially heartening was that other Asian nations followed the lead of China and the West in reducing their rates.
“People are hoping that the plans from the Fed and others for economic recovery will start to have some effect,” said Donald Selkin, of National Securities Corp. in New York. “Copper will not be able to have a sustained recovery until the economic recovery gains some legs.”
But many analysts cautioned that the economic stimulus provided by rate cutting could prove to be ephemeral, and that it by no means suggests that anyone is out of the woods as yet.
“These bounces are very, very trivial when you think of what has happened in the past few days,” said Stephen Briggs, commodity strategist at RBS, referring to copper’s recent nosedive.
Copper is off more than 11% this week, and yesterday its gains were trimmed in late trading as the stock market came off dramatically.
Ominously, copper trading on the Shanghai Futures Exchange was halted yesterday after the metal plunged by the daily limit for a third day. Trading has resumed today, with the daily price swing limit set at 4%.
