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Kitcommentary from Kitco Metals Inc. - "Cliff-Dwelling"

Category: Investment, Gold, Mining

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November 9, 2012 ( Mining stocks newswire) Metals markets opened mixed this morning as the final session of quite an active week got underway. Spot gold was down less than $2, with a bid at $1,731 and silver was off 13 cents at $32.18 per ounce. In the physical markets, Reuters News reported that "gold importers in India, the world's biggest buyer of bullion, paused on fresh purchases ahead of festivals next week, as a weaker rupee helped the yellow metal hit its highest level in seven weeks. The festive season in India will peak with Dhanteras and Diwali, while the wedding season continues until December."

Platinum advanced $24 to start at $1,562 the ounce while palladium was unchanged at $613 and rhodium remained static at $1,175 per ounce. In the market background, we had crude oil falling 90 cents to $84.20 per barrel, copper dipping 0.40% to $7 per tonne, and the US dollar climbing 0.27% to 81.06 on the trade-weighted index. Stock index futures pointed to yet another potential day of losses in the Dow and the S&P. As of this writing, the Dow was down 18 points at 12.793 and change.

Market analysts at Standard Bank (SA) noted this morning that gold continues to push higher despite the dollar's strength as players continue to bank on more easy money courtesy of the US Fed. They also noted that "Participants didn't seem to take much notice of St Louis Fed President Bullard who argued yesterday that monetary policy might be a little easier than it seems on the surface. In light of this, he suggested that it could be hard to argue for an extension of Operation Twist which ends this year. The Fed will need to make a decision on whether to extend the programme at the next FOMC meeting scheduled for 11-12 December."

The three dominant factors at work behind this week's market gyrations were the US election cliffhanger, the Fiscal Cliff that hangs over the heads of US politicians, and the socio-economic cliff whose edge Greece hangs so near to at this time. As mentioned in our last posting, it did not take long for one set of previous jitters (who might win the election?) to be replaced by a slew of old ones (what will happen to the US on January 1st and what might happen to Greece, like, any day now?).

Billionaire investor and philanthropist George Soros chimed in once again about the situation in the Old World and had this to say about it this week: "The euro crisis is threatening Europe's cohesion and the ideals behind the European Union. The attractive idea of equal states being devoted to common goals is threatened, as there is a division between countries. Investors and creditors are in charge." Mr. Soros also warned that the depth of the Greek crisis has given rise to ethnic and racial tensions that are disturbing. Meanwhile, the ECB left interest rates unchanged this week citing the economic outlook for the region.

Permanently bullish gold market pundits were quick to jump back onto the bandwagon containing fellow alarmists who envisions inevitably higher prices for the yellow metal as a result of Mr. Obama's re-election. The same voices who had warned about the US dollar suffering a miserable death by the end of (insert your favorite year between 2007 and 2012 here) are now predicting the same by the end of next year, (or, January of 2017!) at the very latest. Yet, as of this writing anyway, the greenback is comfortably above the pivotal 80.00 mark on the aforementioned index, and not convulsing at 72, 65, or 54 as was projected to be the case by now. Still, certain news outlets are doling out heaps of alarm and fear about the looming precipice.

So, here is the head-scratcher (for some) of the day: the dollar's vigor and the much-ballyhooed fiscal-you-know-what. To whatever extent the proximity of the deadline that could have the US take the "Thelma & Louise plunge" results in a flight to gold by crisis-fearing investors, the same event could make for another flight as well; that of the US dollar towards the stratosphere (and that is something that has traditionally not been very good for bullion). This morning, the buck gained further ground –according to MSM sources- on account of the fiscal-you-know-what getting nearer.

Now consider one of the other sources – a traditionally pro-gold one- and its take on what the New Year's Day event could mean for the American currency. If one reads the Money Morning article carefully, one might conclude that someone (the bandwagon folks mentioned above) must be wrong, or, that, for the first time in…cannot remember when…we might have a dollar that could rise 10-15% and a gold price that will also rise by at least as much or more (as it is being claimed). Most commenters on the MM article, much like Karl Rove debating the Ohio poll numbers on Fox News on election night, do not want to hear that and they are vehemently denying such a possibility for the US dollar.

US equity markets threw a sizeable tantrum in the wake of the Obama victory at the polls and finished recent sessions at lows not seen since July (the Dow) or August (the S&P 500). In the process, they ignored the sizeable decline in the US trade deficit, another decline in the weekly jobless claims filings figures, and a leap in US consumer sentiment. The University of Michigan/Thomson Reuters consumer-sentiment index vaulted up to 84.9 in November - the highest such reading since July of 2007.

Also in that process, the Street ignored the fact that the looming fiscal event is shaping up as less of a cliff and more of a slope, owing to the fact that (finally) there are signs of both sides slowly moving towards a compromise before January 1st; one whereby both parties can claim victory on higher taxes as well as less spending.

The trouble this week was that, apparently, Wall Street had gone substantially 'long' on Mr. Romney winning and had high hopes that the Dodd-Frank regulatory overhaul was not going to hang around in full bloom for much longer. When Mr. Romney failed to become the next occupant in the Oval Office those bets were unwound in a hurry and the blame was laid on everything from the fiscal-you-know-what to Europe, and to Mr. Obama himself. Financial and coal-related stocks took a severe drubbing on Wednesday.

Meanwhile, President Obama is expected to make a statement this afternoon on what he plans to do in order to bring back vigor to the US economy and to avoid the US pulling a "Thelma and Louise" on New Year's Day 2013. The statement will come as a response to whatever House Speaker Boehner might say in a press conference he will hold earlier in the day. One thing Mr. Boehner is no longer anticipated to say is that he will continue to seek a repeal of "Obamacare."

Speaking of things that happened (the Obama victory) and of things that did not or will not now happen as a result of Tuesday night's thriller, we turn to TV host Rachel Maddow and a fascinating list of items that regularly make an appearance in alarmist financial newsletters. Ms. Maddow noted on Wednesday that the US will now have to do without the following (among other things): the overturning of Roe v. Wade, a 20% tax cut for millionaires, the elimination of the Departments of Energy or Education, the military getting $2 trillion that it does not even want, a trade war with China, and John Bolton as a Secretary of State.

Perhaps- just perhaps- America might also 'have to make do' with a stronger currency, come 2013. Go figure.

Oh, and "THE CLIFF?" Looks like the jump off of something took place on Wednesday already: Newswire

Until next time, hang on to that rope!

Jon Nadler
Senior Analyst
Kitco Metals Inc.
North America
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More Info: Newswire

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