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OUTSIDE MARKET DEVELOPMENTS: Although Fed Chairman Bernanke’s statements yesterday didn’t seem to be that different from recent comments, the Treasury markets and a host of physical commodity markets took the threat of higher rates seriously overnight. Mr. Bernanke commented that while the Fed must continue to prop up the economy for a while, it cannot due so indefinitely and that apparently prompted some Dollar shorts to bank profits and move to the sidelines. The market seems to be taking the view that a rate increase is inevitable, even though some are saying it may not happen until mid-2010. Others suggest that as long as the stock markets continue to rally, it will be easier for central banks to tighten without definitively strong economic readings. The Dollar was up overnight as well, and a number of other commodities fell in reaction to Bernanke’s statements. Despite its overnight gains, the dollar may seems to be held back because of strength in Canadian jobs data and perhaps because of expectations that the US will see an expansion of its Trade Balance readings later this morning. However, seeing an improvement in the Canadian and Australian jobs sector this week would seem to provide the markets with an improved global economy argument.
GOLD MARKET FUNDAMENTALS: After a strong rally all week off of inflationary expectations and concerns that that the dollar will eventually be supplanted as the benchmark in the oil trade, the gold market is being pressured this morning as the dollar reacts positively by what is being perceived as hawkish commentary by the US Fed chairman. The fact that Bernanke’s comments came in conjunction with better than expected labor and retail sales data seems to give more credence to a US rate increase coming sooner than previously expected. Of course these expectations could be dashed with another round of negative economic data or a noted reversal in the equity markets. While the fundamental supply aspects of the gold trade have been discounted all week, there is some additional bearish news this morning, as a miners strike in South Africa appears to be on its way to being settled, but that bearish news could be tempered because of news of declining monthly production from that area early this week. Some 500 miners are already back to work at one mine, and there are reports that 3900 at another mine are close to reaching an agreement as well. That mine is said to be currently losing production on about 320 ounces per day. Gold having gained almost $70 per ounce since last Tuesday’s COT reading suggests that the 307,000 record net spec and fund long position might be surpassed in the report that will be released after the close today.
SILVER MARKET FUNDAMENTALS: Like gold, the silver market is under pressure this morning from the initial stronger Dollar action. And like gold, silver saw a sharp rally over the past several sessions on ideas that the metals provide cover against upcoming threats of inflation. With the dollar recovering off of the Fed chairman’s comments and some better than expected US economic data, silver seems to have lost some of its recent allure. While the silver market hasn’t paid that much attention to physical supply side news lately, seeing somewhat negative outside market action and a possible overbought technical condition might prompt the trade to embrace some bearish overnight production news. Therefore it is possible that news of a 42% increase in silver production from an Argentine mine for the third quarter will be given some credence today. Some players suggest that silver’s periodic lag on the recent sharp rise in gold prices was the result of silver’s industrial demand fear and in the face of decent Canadian and Australia jobs data and a good week in world equities, it is possible that silver and other industrials will weather profit taking pressure somewhat better than the gold market.
PLATINUM: Platinum could be partially supported because of favorable Aussie & Canadian jobs results this week, and the market might also be somewhat cheered by news of soaring GM Chinese auto sales. However, the market was pulled up by gold and pulled up by the Dollar and therefore positive macro economic information might not be given that much credence today. Near term corrective targeting in the January platinum is seen at $1,325.10.
