-- Posted Thursday, 10 May 2007 | Digg This Article
This morning, post-Fed decision where there were no changes made to the statement of any significance, we've got a raft of data hitting the market that should all be precious metals positive, but silver and gold are taking it on the chin again this AM.
1.) South Africa reported that gold production was down another 10.8% in March versus the same month last year. This follows Peru's report yesterday of production down 14%. These are not small changes in supply from the number one and five global producers. Peruvian, South African and Canadian gold production has gone into near free fall in the last five years at the same time global production has been down nearly 8%. (Using GFMS statistics)
2.) Trade deficit figures came in 10.4% higher in March than in February at $63.9 billion while analysts had been expecting $60 billion. This was due to higher energy prices.
3.) Retail sales for April came in at much weaker than expected levels with Wal-Mart leading the disappointing report. These figures are key to understanding the direction of the US consumer portion of the economy. The consumer and their credit has been the major leg of support underneath the US economy. If this becomes a trend, the economy could be in major trouble. The Wimpy mentality of the US consumer (I'll gladly pay you Tuesday…) might be finally coming home to roost.
4.) The ECB kept rates steady at 3.75%, but prepped the markets for a raise in June to 4% to combat rising inflation in Europe. The Bank of England, as had been expected, raised rates to 5.5%. Inflation is surging in Europe and is currently sitting over 3%.
5.) Oil prices are jumping today.
So what's going on?
It's our belief that the market supply gap is being bridged at present by an increase in Central bank sales and possibly increased loans and swaps which is no surprise to anyone who regularly reads our notes! But while this influx of central bank gold is hitting the market to satiate demand and hold prices down, every other market indicator is turning particularly bullish.
To say mine supply is slumping would be and understatement after seeing South African and Peruvian production numbers so far this year; dehedging which had been expect to slow significantly this year has done the exact opposite and ramped up; the US dollar has continued to weaken and is currently sitting right around decade lows; Metal ETFs are popping up all over Europe to meet investment demand, the key being follow through to add additional demand to the market; while central bank sales have increased considerably in the last two months, we still believe that for the second straight year, sales will fall short of the annual quota; 2nd and 3rd tier banks are buying some gold for reserves. These purchases aren't at significant levels yet, but 30 tonnes of purchases by banks in the last year is still 30 tonnes off the market.
So our advice is to keep an eye on long term trends like mine supply and bank sales, not daily action described as profit taking, book squaring and fund activity. Precious metals are a medium to long term trade, not a day trade. Keep your eye on the London close where the physical metals are sold. While certainly not true every day, 84% of the last 35 trading days have seen prices bounce back considerably once the London market shuts down. Additional supply from banks is keeping prices bottled up, but we strongly believe this is a temporary phenomenon and that this should be greeted as an opportunity to add to positions .
Blanchard and Company, Inc. is the largest and most respected retailer of American rare coins and precious metals in the United States, serving more than 450,000 people with expert consultation and assistance in the acquisition of American numismatic rarities and gold, silver and platinum bullion. The Blanchard Economic Research Unit is a key source of precious metals market analysis and continues to be an important resource for financial and consumer media throughout the United States. Blanchard and its predecessor companies have called the New Orleans area home for more than 30 years. For more information about the company, visit BlanchardGold.com or call the company toll free at 1-800-880-4653.
-- Posted Thursday, 10 May 2007 | Digg This Article
