US dollar aggravated sufficiently to bring about currency market interventions on the part of at least two Asian central banks

 No (Entitlement) Pain. No (Tax) Gain. What a Country!

By Jon Nadler
Senior Metals Analyst – Kitco Metals

Overnight losses in the US dollar aggravated sufficiently to bring about currency market interventions on the part of at least two Asian central banks.South Korea and Malaysia tried to prevent their currencies from touching new highs while China allowed the yuan to be fixed at yet another record high against the greenback. The Bank of Thailand was thought to also have intervened in the markets yesterday.

Australia’s Foreign Minister Kevin Rudd, on the other hand, stated that his country is “not in the business of regulating exchange rates” despite the Aussie having risen to values not seen since the early 1980s.

This week’s list of hefty US corporate earnings (Apple was the latest to polish its books to a shine) and still-improving US economic statistics stoked a bout of market risk-taking that brought the Dow to nearly the 12,500 level, WTI crude oil to above $112 (and Brent crude at $124) and precious metals to the top of bold-font headlines globally. In pre-holiday trading this morning, the patterns were not much different than those that have been on display for the past five trading sessions, or for most of the current year, as a matter of fact. Crude oil values have risen 22 percent since the start of 2011, for example. Black gold is projected to keep rising until around June, when they are expected to pause

Spot gold dealings opened with a $3.50 per ounce gain in New York and the yellow metal was quoted at the $1,505.10 level on the bid-side. Overnight highs near $1,510.00 were recorded amid the aforementioned dollar-oriented selling overseas but the US currency was seen attempting to regain the 74 level that it breached on the index in the wee hours at the time metals opened for trading in New York. For the moment, the US currency remained near the 73.85 zone ahead of pre-holiday weekend book-squaring activities.

About the only market statistic for dollar (and by extension gold) traders to ‘bite’ into this morning was the weekly initial jobless filings claims number. It fell on the reporting period (by 13,000) but remained above the key 400,000 pivot level for a second week and it was thus unable to lend a helping hand to would-be dollar buyers this morning. However, the advance in gold came to a halt following the first hour of trading and the yellow metal ‘quieted’ down to unchanged levels (near $1,502) as the morning action started to witness the beginnings of the exodus of traders for the long weekend ahead.

As Elliot Wave technicians see the market, the push in gold continues to be aimed at a trendline convergence level near the $1,535 area and only the appearance of certain five-wave reversal patterns would undo such a trajectory at this point. On the other hand, the New York Times noted that “the likelihood is that the Fed will join the global trend and raise rates late this year or early next. The opportunity cost of holding precious metals will then rise.”

Not everyone is on board with the scenario that envisions a rapid shift in Fed policy however. At least as regards the Treasury bond markets, the signals are of the variety that are currently apparently factoring in continued Fed largesse for a while longer. The implication that an agreement being reached to reduce the ratio of debt-to-GDP might result in a lower level of US economic expansion is that the Fed would try to offset it by maintaining low rates into 2012.

There are however also signs that despite recent serious bi-partisan efforts to rein in the US fiscal deficits, the US public wants the best of both worlds; no higher taxes and a continuation of entitlement programs it has become accustomed to. A survey by the Washington Post-ABC News reveals that Americans would rather, for example, leave Medicare alone in its current guise. Another “sacred cow” that few are willing to touch with the budget-cutting axe is defense. More than 50% of those polled in the survey do not want their taxes to go up but are all eager to have the wealthy class pay more in same.

Such findings came despite a recent recommendation by the National Commission on Fiscal Responsibility for “shared sacrifice” among Americans of all socio-economic stripes and it does not bode well for the future of the discussions and possible actions relating to the thorny problem of America’s debt.

Spot silver continued its very-near-vertical trail and opened with a 78-cent gain at $46.01 (another day, another dollar is the emerging mantra) per ounce. Overnight highs were etched into record books at the $46.30 per ounce mark.

South Africa’s Business Day quoted widely divergent opinion by metals analysts as regards where the markets currently are and where they might be in the not-so-distant future. Noted London-based Credit Agricole analyst Robin Bhar was quoted as saying that silver and gold while in a “perfect storm” have been the subject of “bullying” by some hedge funds in recent sessions. “Poor man’s gold” has morphed into anything but poor ever since around Valentine’s Day (when it was quoted at a then lofty $30/oz.).

Platinum and palladium also continued their recent string of robust advances and remained partially bolstered by the similar types of assumptions that have been pushing the entire commodities’ complex to stratospheric levels; the implicit bet that the Fed will keep the interest rate environment in the US at near-record low levels for a while longer, thus enabling the heavy and relatively cost-free participation by speculators in the commodities’ space. Platinum started the session near the $1,813.00 bid quote per ounce (a gain of $14) while palladium advanced by $4 to the $762.00 per ounce mark.

The gains in the noble metals came despite news that Toyota Motor Corp. is extending its production cuts at facilities in North America and China as a result of parts shortages being caused by the after-effects of the Japanese quake in March. Automotive industry analysts and other market forecasters project as much as a ten percent loss in US sales for the Japanese auto giant for this year. US dealers are scrambling to get their hands on various models that are normally only assembled in Japan.

A combined 230,000 units of cars produced will have been lost in the roughly three month period that started on March 11. That loss in autos built comes to approximately 15% of Toyota’s most recent annual output at these plants. As a result of such developing shortages, (and also due to $4.50+ per-gallon-gas) two-year-old used Toyota Prius models have been selling at or near their original sticker prices in California and other US states lately.

We close this week’s observations with a quite cogent take by RBC Capital’s writing team as regards the main actor on the market stages today. Parsing this passage is timely and well-worth it:

“The main driver though remains the US dollar. Its weakness is apparent to all now and set to continue… this is the next crisis and will continue to destabilize a lot of people, especially those trading everything in USD. This is why it remains so hard to sell commodities right now and why the likes of gold and silver keep making daily highs. The perception now is that the only risk in commodities is overcrowded trades, but the most obvious one remains inflation driven slowdown.  However as we made the point in one of our recent commentaries we are heading into another price spike if history is anything to go by. It appears clear to us, whatever the Fed is doing has to be strategically planned, they have enough clever economic gurus and models to forecast the longer term impact of what they are doing and just like the Chinese they too can massage data to support their goals.  The question now is: Who will blink first?”

Hasn’t that always been the question?