DAILY KITCOMMENTARY FOR: Dec. 22, 2010
Dull conditions persisted in the metals and currency markets
throughout the overnight period, following an equally lackluster
trading session on Tuesday. Spot price tickers showing live
changes on the new Kitco iPad \"Gold Live\"
showed...almost no change or sign of life in the yellow
metal for most of the day yesterday.
Judging by the first couple of hours of Wednesday action, the
pattern was about to go into 'instant replay' mode again.
Although crude oil made a notable advance this morning, breaking
through the $90 mark and moving to its highest level in over two
years, the remainder of the commodities' complex exhibited mixed
but still shallow price performance and thinning participation
ahead of the holiday period.
Well, the US economic data did surprise to the upside, but
only just. The revision of the Q3 GDP figure lifted the pace of
growth in the US to 2.6% (versus the 2.5% previously reported
figure). Several surveyed economists had pegged the number to
show as much as a 3% GDP growth rate for the period. However,
when accounting for an upward revision in US imports, the net
result was that which the markets learned this morning.
No such luck for the UK economy, on the other hand. The
British GDP rose 0.7%, exhibiting a larger-than-estimated slowing
on the aforementioned quarter. The Bank of England remained split
on policy, as minutes of its Dec. 9 meeting came to light. Great
Britain is in the midst of the biggest squeeze on its budget
since the Second World War. British consumers slowed their
spending, as did the country's government. And now, the snow
cometh. Bad weather could affect not just travel to and from the
UK but the shopping sorties of the country's denizens leading up
At any rate, the majority of tracked assets this morning
showed mini-moves of from 0.20% (the dollar, copper, gold to less
than 0.5% (crude) as the preoccupation with book clean-up and the
office cookie-tray took precedence over fresh position
commitments to various assets among players. The US dollar fell
slightly in the wake of the GDP data. Overseas, the euro received
a bit of a lift following Chinese statements that it will commit
to supporting the common currency during this difficult period,
and that it will actually buy significant amounts of Portuguese
debt (perhaps as much as 5 billion euros' worth of it).
Cotton and rubber futures fell fairly hard, wheat gained, and
copper traded somewhat lower prior to the release of US GDP data
this morning. Black gold's gains were based mostly on projections
that the US economic picture would show a sufficient degree of
recovery strength to warrant price optimism for the commodity. In
other news, US existing home sales rose 5.6% in November -close
to consensus, but still nearly 28% under one-year-ago levels. The
current 4.7 million annualized sales rate is thought to have to
rise past the 5.2 million level in order for economists to
conclude that the US housing sales niche is back 'on track.'
Gold started the midweek session with a $1.90 per ounce gain,
being quoted at $1,387.40 on the bid-side, as against a reading
of 80.55 on the dollar index and a 35-cent rise in crude oil (to
$90.17 per barrel). The yellow metal did receive one bit of
possibly supportive news, in that the IMF announced that its
disposal of 403.3 tonnes of bullion has now been completed.
About half of the IMF's originally slated-for-sale tonnage was
off-loaded on-market, as opposed to finding a home in one or
another central bank, as had widely been anticipated. Physical
buyers were showing a modicum of presence in silver this morning
as well, as the white metal narrowed its opening loss of ten
cents to but two pennies and traded at $29.35 per ounce.
Platinum and palladium continued to advance, with the former
rising $6 to the $1,727.00 level and the latter gaining $4 to
touch the $756.00 mark. Giving credence to previous views that
stories floated earlier this year regarding the putative
'drying-up' of Russian palladium stockpiles were just...stories,
Norilsk Nickel announced that it now
expect 'some' noble metal to come to market from those
state inventories in 2011, and, that the 'drying-up' might now
only occur in 2012. No worries there, there are some 2.2 million
ounces of palladium on another 'stockpile' - that of the various
ETPs focusing on the PGM niche.
Meanwhile, don't look now, but there is a warm-colored metal
that has gained 28% since the start of 2010 and it is...warming
the hearts of investors. Not what you think, however. What is it,
you say? It is...copper. Yes, a wonder metal that appears to have
no limit in upside price potential, that is, if we are to listen
to...assorted investment firm spokesmen. Why, just yesterday it
was reported that a \"single trader\" owns some 80-90% of all the
orange stuff being held at the LME Warehouse (one whose last name
is possibly \"Morgan\" and not \"Hunt\").
What's next? Why, of course, the obligatory launch of a purely
copper-oriented...ETF (which means, more of the same; the growing
pattern of off-exchange hoarding of metals and other \"stuff\" by
non-consumers of same). There are now nearly 1,000 ETFs of
various kinds on the investment scene (and more on the way. A
good thing? Hmmm. The answer depends on the person being queried.
At the extreme end of the respondents' spectrum are the critics
who allege that ETFs may be used to manipulate market prices.
Then, there are those who merely observe the facts, but do not
draw much more encouraging conclusions:
John Bogle (Vanguard Group) minced no words when he
characterized ETFs as \"short-term speculation\" and such
vehicles have also been critiqued as instruments which decrease
investment returns by zapping their holders with trading and
That would only be half the problem, however. More significant
is the variance between an ETF's daily net asset value (
) and the daily closing price of the stuff it invests in. The
Wall Street Journal reported that (during a turbulent market
period in November of 2008) the deviation in the
NAV-versus-closing-price in certain sparsely-traded ETFs turned
into 5 and up to 10 percent gaps. Back in 2007, Mr. Bogle warned
in his book \"The Little Book of Common Sense Investing\" that
\"while some broad-based ETFs are fine, the rest, are just
disasters waiting to happen.
\"Investors are performance-chasing\" warned Mr. Bogle. Well,
they still are (chasing) three years (and another 500 ETFs later)
after that word of caution was issued. Thus far, no 'accidents'
(unless, of course,
that ETFs were at least
responsible for, or played some role in, the May \"Flash
And now, for something completely different (though also
completely predictable); more
, coming to an investment theatre near you. Starting on January 1
, the average US equity brokerage firm will track (and report)
the price an investor pays for a stock (or that share of gold
ETF). No more 'fuzzy math' when it comes to reporting the gains
on a share. Cost basis reported? Check. Sales proceeds reported?
Check. Result? Send that check (for the cap gains taxes) to Uncle
Sam. Can similar reports be far behind in the commodities' niche?
Probably not, and you may consider yourself as having been
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