The Daily Resource 11.20.08
The Daily Resource 11/20/08:
By Doug Hornig
Gold noodled along little changed until the first hour in New York, when it spiked nearly vertical, running from $735 almost to $765 in the space of an hour, but it then encountered selling that shoved it all the way back below $735 by early afternoon, after which it did little, finishing at $734.90, down $2.80. Overnight, gold has been pushing higher.
Platinum peaked at $850 in Hong Kong and, except for a bump up when New York opened, it was all downhill from there, as it ended just off its intraday low of $808/oz., down $22. Overnight, platinum has edged lower.
Silver’s chart looked very much like gold’s, only worse, as it skied to $9.85 at mid-morning, then collapsed, with even a late Comex rally totally snuffed out, and limped through the Globex to close at $9.19/oz., down 40 cents. Overnight, silver is sharply higher. (Click here for charts)
In what is becoming a broken record, we have to write that it was yet another disappointing day for gold, as it seemed poised to move counter to the falling equities market at the outset, but then grimly joined the stock market in its afternoon slide.
Nor did the usual suspects offer any support, as crude continued to drop and the dollar rose against the euro.
Despite the dissatisfaction of the day, some see a turning point. “The buck is definitely running out of steam, so gold bulls will soon do plenty of dollar bashing,” said Ralph Preston, an analyst at Heritage West Futures in San Diego.
That moment can’t come soon enough for gold fanciers, but for now, says James Moore, of TheBullionDesk.com, “gold is likely to remain in the current $720 to $765 range.”
Though gold may be stuck in its range on the Comex, that has not hindered physical demand in any way.
In a World Gold Council report released yesterday, the WGC said there were massive outflows of gold from institutional investors in the third quarter, as they struggled to raise cash to cover losses elsewhere.
But there were correspondingly massive inflows to retail investors, as they bought bars and coins to the tune of 232 metric tons (7.46 million ounces) in the third quarter. That compares to only 105 tons in the same period a year ago.
In the currency market, the dollar moved higher against the euro. Late Wednesday, the euro was trading at $1.2514 vs. $1.2637 on Tuesday.
The day’s big number was the Labor Department report showing that consumer prices fell a record 1% in October, the most since records began in 1947 and slightly more than economists’ forecast for a 0.9% drop. CPI excluding food and energy fell 0.1%, in line with economists’ expectations.
“The economy's really just in horrific shape,” said Joseph LaVorgna, economist at Deutsche Bank Securities in New York. The Fed will “take rates as low as they have to,” to avoid “a deflation-type scenario, which now all of a sudden is very possible,” Lavorgna said, predicting that rates will be sliced to 0.5% at the next Fed meeting, December 16.
On top of the CPI report, the Commerce Department said that home builders reduced starts of new homes by 4.5% in October, to the slowest pace since the 1940s. Housing starts have now fallen 38% in the past year and are down about 65% from the early 2006 peak.
And the day’s capper was the release of FOMC minutes from the October meeting, in which it was written that policymakers “generally expected the economy to contract moderately in the second half of 2008 and the first half of 2009, and agreed that the downside risks to growth had increased.”
Though they refused to call it that, the Fed is now forecasting a recession lasting a year or so. The committee did concede that “the subsequent recovery would be relatively gradual … Financial stresses would recede only slowly, notwithstanding the extraordinary measures that had been taken.”
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Energy
In the energy market Wednesday, oil edged lower, with crude for December delivery closing at $53.62/barrel, down 77 cents. Gasoline for December delivery dropped 3 cents, to $1.107/gallon.
In its weekly inventory report, the Energy Information Administration said that crude stockpiles rose 1.6 million barrels for the week ended November 14. Gasoline supplies climbed by 500,000 barrels and distillates were down 1.5 million barrels. Refineries were operating at 84.9% of capacity vs. 84.6% a week earlier.
The numbers are “generally bearish especially when compared to the normal week in November,” said James Williams, of WTRG Economics. “Typically, crude-oil stocks fall at a rate of 1.1 million barrels per day in November.”
Williams added that, “If the market trades on the data and not the upcoming OPEC meeting, we should see oil prices down [further].”
Deutsche Bank has turned ultra-bearish, saying that crude prices could drop as low as $40 by April as demand plummets and production becomes more cost-effective. Prices will fall on “a huge overhang of new, more efficient refining capacity addition into an already-oversupplied market,” the investment bank said.
Base Metals
The base metals on were all awash in red again on Wednesday. Copper sank from the pre-dawn hours to mid-morning, rallied a bit, but faded again to finish at $1.5656/lb., down 4½ cents. Nickel sagged until the afternoon hours, when it staged a modest late-day rally to close at $4.5389/lb., down less than 7 cents. Zinc had a lot of ups and downs with a slight down bias, ending at $0.5247/lb., down a bit more than a penny. Aluminum was down in the pre-dawn hours and stayed down, losing more than a penny to $0.824/lb., while lead fell in an unbroken down line to $0.5543/lb., off nearly 2¼ cents.
Copper led the industrial metals lower as burgeoning stockpiles present compelling evidence that supplies exceed demand at the moment.
In fact, production topped demand by 26,800 metric tons this year through September, the World Bureau of Metal Statistics said yesterday.
And inventories monitored by the LME climbed to 280,500 metric tons yesterday, marking the twenty-first straight day of gains, the longest unbroken string since early 2002. Stocks are up 55% over a year ago, and at the highest level since March 2004.
Traders also reacted to the weak housing starts numbers. More copper is used in construction than anywhere else.
Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey, is throwing in the towel, saying that, “The trend right now is down for copper … There's weakness in the economy and demand. Any rally we see would be a good selling opportunity.”
How low could we go? As low as $1.30/lb. as demand “dries up,” says Gijsbert Groenewegen, of Gold Arrow Capital Management in New York
New York trader Roger Corrado believes, however, that “There could be an opportunity to buy copper again … It seems like a lot of production companies are going to cut back. Mix that with China recovering within the next nine to 16 months, and copper demand goes up. Then, you could probably see prices start to move upward again.”
Doug Hornig, Senior Market Strategist
An editor at Casey Research, Doug Hornig’s work can be read in "BIG GOLD" a monthly newsletter which focuses on mid- to large-cap gold stocks; "What We Now Know" – a free bi-weekly e-letter covering trends in investments, geopolitics, the economy, health and technology; and "The Daily Resource" an economy and investment column on kitcocasey.com.
A former Edgar Award nominee, finalist for the Virginia Prize in both fiction and poetry, and a past winner of the Virginia Governor's Screenwriting competition, Doug lives on 30 mountainous acres in a county that just got its first stop light. He is an admitted political junkie, but hates all political parties.
Doug has authored ten books and has written articles for Business Week, Playboy and more.
