And Now, Previews of Coming Attractions
By Jon Nadler
greenback slipped by more than one full point on
the trade-weighted index on this last trading
day in May, the "sell in May" adage was heavily
contradicted by copper, oil, gold, silver, and
commodities overall. We have now tallied a
near-5% loss in the dollar during the month of
May. Apparently, if there was something to sell
this past month, it was the greenback.
Silver posted its best monthly gain in 22 years.
At the same time, crude oil advanced by the
biggest monthly gain in ten years' time. For
gold to have sat still in the wake of such a
powerful and utterly classic' combination would
not have been very logical. The metal has
advanced more than 8.75 % over the past 30 days.
New York spot prices continued their last
session of May near the $979 mark in the
afternoon hours, amid persistent bouts of heavy
shortcovering by options traders. Open interest
decreased 6500 contracts and we have yet to
learn about first notice day results. The
bullish picture remained intact on the day
despite heavily overbought conditions (and not
just in gold).
The CRB posted its best monthly rally in 34
years. An almost mirror image replay of last
July's total meltdown. Metals traders over at
RBC are anticipating strong volatility on
Monday, as the yellow metal approaches the $1K
mark - usually prime fodder for intensive media
coverage. As well, for the issuance of 'this is
the moonshot we've been praying for' among those
who usually pray for such. You know the acronym.
RBC also saw gold traders shrugging off today's
GDP figures and next week's possible answer as
to whether or not Congress will approve the sale
of the initial 403 tonnes of IMF gold. All of
this unfolded against a background that showed
the US dollar at 79.33 on the index this
afternoon, and crude oil up another $1.29, to
$66.37 per barrel. Silver, no longer playing
catch-up but leading the charge, rose 52 cents
The real stunner, this last day of May, platinum
and (to some degree) palladium. The former
gained $51 and the latter $9, to rise to $11790
and $234 per ounce respectively. One business
day before GM goes bye-bye. Makes all the sense
in the world. Stocks went nowhere fast for the
day, confused by poor GDP numbers and the
highest level of consumer confidence since last
September. Makes all the sense in the world, as
Once the US dollar broke under the 80 mark on
the index, it sent additional holders in search
of...greener pastures. Must have been one very
"successful" overseas trip by a well-known money
manager who is boasting about urging foreign
countries not to accept US debt any longer. The
US currency lost more of its previous safe-haven
appeal and headed for its biggest year-to-date
monthly decline in the wake of something else
that being perceived as turning greener by the
day: the shoots of the economies of the world.
Okay, take the Philippines off that list, as its
GDP shrank by more than 2% as seen in the last
set of metrics.
India, however, surprised, with 5.8% gain versus
one year ago. Japan surprised even more. Its
industrial production took a leap forward at a
rate not seen in 56 years (!). At any rate,
dollar holders appear to be demanding higher
interest rates for the privilege of holding it.
Since they have not yet seen signs that they are
about to receive such compensation in the very
near future, the results we observe: oil and
gold turning in a VERY shiny month of May
Heard on Bloomberg Satellite Radio today: the
idea has been floated to offer tax exempt status
to US buyers of US debt. Not just a trial
balloon, either, this idea. Remember War Bonds.
Ya think foreigners turning their noses up at US
debt would have ANY meaning ANY longer if that
scheme were to see the light of day? Not that
the rest of the world is treating US debt as the
H1N1 bug. When it remains the deepest and most
liquid market of all, you might worry about it
on particular days, but you do not bail from it.
The current advance represents gold's first
monthly gain in three. Question now is, gain to
what level, for how long, driven by whom, why
now, (and not during the full brunt of the
'perfect storm') and how viable the recent gains
are, being inflation-anticipatory rather than
actual, here and now, inflation-avoiding ones.
Also in question, is the absence of visible
additions to the gold ETF's holdings.
Further questions may be raised, as well as
answered next week, when GM's saga comes to a
head, and when Mr. Geithner heads to China. Rush
Limbaugh and his followers will have a field day
(week?) in describing the trip as some kind of a
Chi-Com 'butt-kissing fest and debt-buy-pleading
pilgrimage to Beijing' by the Obama
administration and/or its representatives.
Thus far, the gold market has fought off some
mildly, and some not so mildly, bearish news on
the fabrication demand front, official sector
front, and on-going deflationary scenario front.
One needs to look no further than inflation data
from Europe this morning: the figures show none.
Zero. If you think that such a set of conditions
presages a Zimbabwean-style 7.7 million percent
daily level of inflation (231 million percent
per month), go ahead and be our guest. Let's
first get to 7.7 percent per annum, first. If
that. We will risk repeating ourselves, but here
goes: There will be no Harare-on-the Hudson
scenario unfolding in the US. No Weimar, circa
1919 plus 14, either.
When we say it is too early to kiss
deflation/contraction/slowdown goodbye, we are
likely putting it very mildly. Rather than fret
about 200-million percent hyper inflation, one
would be well-advised to sit down and have a cup
with the next set of statistics. Bullet point,
after painful bullet point. Fresh off the
newswires at Marketwatch and from the keyboard
of Rex Nutting:
"- The U.S. economy contracted violently again
in the first quarter, falling at a revised 5.7%
annual rate after sinking 6.3% in the fourth
quarter, the Commerce Department reported Friday
in its second estimate of quarterly gross
- Business investment declined at a record rate
during the quarter.
- Investments in housing fell at the fastest
pace in 29 years.
- Domestic demand fell at the fastest rate in 29
years. Exports fell at the fastest pace in 38
- Over the past year, before-tax profits are
- After-tax profits are down 15%, the largest
decline in 28 years.
- Final demand was extremely weak in the first
quarter. U.S. residents' purchases of goods and
services (regardless of country of origin)
dropped 7.5% annualized, the largest decline
- Final sales of U.S. goods and services fell at
a 3.4% annual rate. Final domestic sales of U.S.
goods and services fell 5.3%. Exports fell at
28.7% annual rate, the most in 28 years, as
foreign markets fell into a deep recession.
- The two-quarter contraction is the worst in
more than 60 years.
- In the past four quarters, the economy has
fallen 2.5%, the biggest year-over-year decline
- Business investments fell at a record 36.9%
annual rate in the first quarter. Investments in
structures dropped a record 42.3%, and
investments in equipment and software fell at a
33.5% pace, the biggest drop since 1958.
Business fixed investment subtracted 4.5
percentage points from growth.
- Investments in housing fell for the 13th
consecutive quarter, dropping at a 38.7% annual
rate, the largest decline since 1980.
Residential investments subtracted 1.4
percentage points from growth.
Trade collapsed during the quarter. Exports fell
28.7%, the most in 38 years.
- Government spending fell at a 3.5% annual
pace, the largest drop in 13 years.
- The price index for domestic purchases (prices
paid by U.S. residents) fell 1% in the quarter.
Consumer prices fell 1%, while core consumer
prices (which exclude food and energy) rose