After a fairly coordinated sell-off among risk assets Wednesday and Thursday, metals have staged a bit of recovery only to begin giving it back this morning. Crude continues to drag the entire commodities complex lower and Brent is now down about 16% on the year. Economists tend to view lower energy prices as a tax cut for the broad economy and as generally stimulative.  With accommodative policy from nearly every central bank in the world, significantly lower unit labor costs and now lower fuel prices, economic growth (and corporate profits) can really only blame The Fiscal Cliff Slope and the Euro crisis.

On the Euro crisis. As always, there are many potential developments this week and yet, nothing concrete:

  1. EU leaders are gathering in Brussels this week with the likely outcome that the ECB will become the single, lead supervisor of banks within the union.
  2. Still no progress on getting Spain to ask for the bailout so that the ECB can commence Open Market Operations and buy their bonds. They are now blaming Italy (?)
  3. Discussion of a British exit from the European Union has intensified and PM David Cameron has promised the growing row that they will have a referendum in the coming months. The Economist has a good article on the subject matter. And, yes, the name for it is the Brexit.
  4. Mario Monti has resigned as Prime Minister of Italy, after former PM Berlusconi’s party withdrew their support for the technocrat. More instability

Despite all of this relatively negative news flow and lack of progress, the EUR/USD continues to hang around the 1.30 mark. Seems relatively range bound between the Nov lows of 1.27 and the now triple top around 1.316 that seems to bring in a lot of sellers. I will be paying very close attention to see if the correlation between metals and the EUR finds footing again after two weeks or so of nearly opposite trading.

In the US, last week’s payrolls data smoked estimates (146k gain v. 85k est.) and the jobless rate fell to 7.7%, but I still have some concerns on the participation rate continuing to fall (63.6% in Nov from 63.8% in Oct). Extended unemployment benefits as part of the original stimulus bill are due to expire soon as well . 2-day Fed meeting begins today. Not much is expected other than a forecast.

A few things specifically on gold: world gold production is up 7% Y/Y according to Reuters. See chart below for more. It is also sitting precariously on a few of the significant DMA levels. From a long term perspective, we might get a rebound in physical jewelry demand from Asia next year with a marked increase in the number of auspicious days on the Hindu calendar.  For the layman (myself very much included), this means a higher number of fortuitous days to get married. Anecdotally, wedding gifts are a significant source of the buying abroad, though I am yet to see any hard numbers around this.

The Only Chart That Matters: World gold production up strong again in 2012 to 12.37MMoz from 11.52MMoz last year (Reuters). There has been a 28% rise since 2008. This will provide some downward pressure on prices.

The Other Chart that also matters: Gold sitting directly on 100, 200 and 365 day moving averages (orange blue and middle green lines) and also seems to be forming a wedge (blue lines). As I’ve mentioned previously, I don’t necessarily believe in divining price action from a chart, but it is noticeable how much we have been restricted to range bound trading for the last couple of months. If ETF buying so much as stumbles, things could get ugly on the futures side.

GTMH:  Euro trading near the higher end of the range, year-end seems likely to contribute more liquidation than demand and the Fed/Global central banks are low on ammo or markets are at least QE-fatigued. Lower.

Call the desk with trades. Bowl season is almost upon us and the last few weeks of trading can bring some significant volatility. Stay tuned.

- Brad

The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Bradley Yates and may differ from those of other NTR employees and affiliates. This information in no way constitutes NTR research and should not be treated as such. Further, the views expressed herein may differ from that contained in other NTR materials. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness, any pricing referenced is indicative and subject to change.


Bradley S. Yates

Bullion Desk- Senior Trader 

NTR Bullion Group, LLC

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