Thursday, January 04, 2007


Metals Fall In Commodity Sell-Off

A report from Bloomberg. "Gold fell a second day in New York as the dollar strengthened against the euro, reducing the precious metal's appeal as an alternative investment. Crude oil plunged 8.3 percent in the past two days, the most since December 2004, as mild U.S. weather curbed demand for heating fuel. Prices touched $55.91 a barrel and are down 12 percent from a year ago."

"The Reuters/Jefferies Commodity Price Index of 19 commodities fell 2.8 percent yesterday, the most since May, led by a 7.7 percent decline in copper. The index was down as much as 1.5 percent today."

From MarketWatch. "A sell-off in commodities, from copper to crude oil, over the past few sessions is telling some veteran market watchers that a slowdown in economic growth, likely one of considerable magnitude, is already underway."

"In the last two days alone, commodity prices seem to have fallen off a cliff.
Copper futures, which tumbled 7.7% on Wednesday, fell another 1.8% on Thursday, and have dropped 27% from their December highs."

"In fact, everything from grains to base metals to livestock to cotton has been selling off over the past few sessions, notes Dennis Gartman, editor of the Gartman Letter investment newsletter. 'In all, it was an unseemly start to the year [for commodities],' he wrote Thursday."

"'Copper is the metal with a Ph. D. in economics,' Barry Ritholtz said. 'It's used in the wiring of homes and offices, in plumbing in construction, and it's also a key component in electronic goods. When it softens, it means we're making fewer homes, offices and computers.'"

"'November 2006 marked the single worst month for for-hire truck tonnage since the last recession,' said ATA Chief Economist Bob Costello. 'Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear.'"

"Gold futures closed lower Thursday to mark a two-session loss of almost $12, while concerns about an economic slowdown and weakness in energy futures put pressure on the metals market."

"'Softer oil plus stronger greenback equals lackluster gold,' said Jon Nadler, an analyst at bullion dealers"

"Gold for February delivery closed down $3.60 at $626.20 an ounce on the New York Mercantile Exchange after earlier falling to $626. Those were the contract's weakest intraday and closing levels since Dec. 22."

"Dennis Gartman said part of the 'unseemly' liquidation of metals positions was caused by talk in the market that a European central bank had bought gold instead of selling it. 'That should be construed bullishly,' he said, and 'for a while it was.'"

"However, traders swiftly shifted to thinking that the bank, rumored to be the Bank of Italy, was actually informing the world of its discontent with the strong euro, said Gartman. Being tied to the single currency has prevented Italy from using currency devaluation to dig its way out of an economic morass, he said.
Concern at this display of 'disdain' for the euro triggered a rush to the dollar, which has continued this morning, he said."

"Elsewhere in the metals sector, March silver rose 16.5 cents to close at $12.835 an ounce, recouping part of Wednesday's more than 26-cent loss. January platinum closed up 10 cents at $1,132.50 an ounce while March palladium rose $3.50 to end at $345.55."

Hmmmm... that buying opportunity might be just around the corner.

Stock markets are definitely spooked today, too.
What a weird market today. You know the economy is screwed up when a strong jobs growth number actually sends the market *down*

It just shows that investors are weighting future potential interest rate moves as vastly more important than actual growth indicators. And that in itself is a sign that people know just how tight a corner the Fed is in.

Personally, I still have trouble imagining that the Fed could actually raise rates again...

But I suppose if they were going to do it sometime, the time to do it would be while heading into the traditionally strong real estate season.

Thoughts on future rate moves anyone?
Between a rock and a hard place. IMO, they'll just keep blathering on about inflation risks vs. slowing real estate and leave rates alone.
That is what I say as well. They say yesterday in minutes how they are remaining "vigilant" on inflation. Mind you, they don't raise rates to ensure it isn't, just talking about it. Then, today, job numbers and wage increases do the job and commodities go down. That can't hurt inflation symptoms. I get upset when people talk about prices of goods and services being the gauge for inflation.

It is just a symptom. Inflation can't be anything other than an increase in the stock of money in the broadest sense (including fiat money, credit money, and money substitutes). If the money stock is held constant (in the broadest sense), you CANNOT have the overall prices of all goods and services go is just mathematically impossible. I would love to hear that debated in Congress or any financial TV show, but I'm not holding my breath. Then a huge can of worms would be opened, and how would the financial powers ever close that can back up?

Therefore, commodities falling will help to make inflation symptoms appear to be subsiding (especially gold selling off). The best part for the FED is they make it all happen without ever increasing rates which would really put a dagger in the housing market.
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