-- Posted Wednesday, 6 June 2007 | Digg This Article
With the White House cutting GDP expectations from nearly 3% to 2.3% in 2007, the markets have already started flipping on themselves in a short period this morning. Should the Fed continue to harp on moderate inflationary levels in the market while the growth component is seeming to break down in short order, it would seem that there is a major disconnect between reported and actual inflationary levels. It will be a tall order for Bernanke and company to continue calling for vigilance in maintaining interest rates with reports showing 2% inflation at the same time growth is trending downward rapidly.
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The ECB decided this morning to raise their benchmark interest rate to a six-year high of 4% and left the door open to further hikes in the future. While the immediate reaction in the precious metals sector was to the downside, we've since seen prices begin recovering. With all of the hoopla and conjecture revolving around ECB captive bank gold reserve activity, keep an eye on the London close at 11 AM EST where all of this activity takes place. If we see another week of ECB reports showing drastically reduced sales around 2 tonnes like this past week, it will be a great signal to the market that the period of increased sales is behind us as we enter the summer months. Gold and precious metals are all over the place this morning. Watch the London close!
I know some analysts made the point yesterday that these increased sales should be cause for concern. I'd like to put the exact opposite spin on the issue. The increased sales were cause for concern before and during the increased sales. Now that those sales have started petering out as looks to be the case with Spain already ramping down selling levels in May compared to March and April and the ECB umbrella organization announcing no further sales this year, we're out of the woods on increased supply pressures on the market. Investors need to look at historical influences on prices. When central bank sales ramp up and put downward pressure on prices, that's been the best opportunity to buy because once that increased supply pressure is alleviated, the price begins rebounding. We believe the market is in store for that type of move with ECB sales disappearing back off the market.
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Platinum unions in South Africa have begun filing paperwork to begin a strike in the next week. The union and mining companies are no where near each other in terms of percentage wage increases at present. If the strike drags out more than a few weeks, the world's largest source of platinum going offline will put the supply side of the market in a real crunch, in turn pushing up prices considerably.
Remember too that the gold miners and their union workers are just starting talks which need to be concluded before June 30th or another segment of the mining community in South Africa will go offline with the platinum miners.
The summer is typically the weakest period for the precious metals markets. With ECB sales drying up and the largest producing country's supply potentially going offline, this summer is starting in anything but typical fashion.
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Editor's note: We've got a new extended research piece on the supply side of the market that should be finished up today which will be passed along. This will be followed by an extended piece on the demand side of the market in the next week.
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