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And Now, Previews of Coming Attractions
By Jon Nadler

As the 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 to $15.67.

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 well.

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 performance.

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 domestic product.

- 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 years.

- Over the past year, before-tax profits are down 18%.

- 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 since 1980.

- 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 since 1982.

- 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 1.5%. "

 



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