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August Doldrums? Not This Year
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August is normally a sleepy time for metals markets.All of Europe, including bankers and traders, takes its annual month off for beach trips and the like, and seasonally the theme is ‘not much happening’ for most of the summer
Of course, August 2011 was the exception for the gold market. Gold rocketed from a base of $1485 on the 1st July, to trade on Monday 8/22 at $1911.46.

The next three days following that Monday saw one of gold’s most violent corrections ever, a $200 drop which was its steepest ever in absolute terms, and the biggest percentage drop in such a short time span in over 25 years.

The gold ‘bubble’ had burst, all the talking heads and pundits proclaimed. If you believed the popular media, this was the end of the gold ‘fad.’

Of course, in the English-speaking part of the world, gold is unloved – particularly by those who claim to know something about how you should invest your money. Stockbrokers, financial advisors, bankers, and money managers generally didn't recommend gold when it could be bought for $271.05. Exactly five years later they didn't like it after its price had more than doubled to $613.40. Their opinion generally hasn't changed today, with gold trading around the $1800 level. So, at least they're consistent in their opposition to the yellow metal that once was money itself.

By week’s end, most of gold’s loss had been recovered, and gold traded in the late afternoon Friday in New York electronic markets at over $1830. Maybe this wasn’t the end for gold after all, and the commentariat moved on to other subjects. And all this (and so much more) happened in the normally sleepy month of August.

Platinum meanwhile failed to participate in this momentous rally, and for a few instances actually traded below gold’s level, an occurrence not seen in well over a decade. Lack of interest in platinum naturally follows dreary economic news, as platinum and palladium usage is driven by industrial uses, primarily in auto and truck catalytic converters. Gloom in the markets could be summed up: if the world is not making stuff, then it doesn’t need raw materials. Logically, then, demand for the platinum group metals should fall. This end-of-the-world line of thinking creates the rare opportunity to purchase platinum at a per-ounce cost on par with the much more common element, gold.

Meanwhile, US stock market action charted like the design on Charlie Brown’s shirt in the Peanuts comic strip. The Dow was up several hundred points one day, down a similar amount the next, only to be up the next. This affected all stock from banks to consumer goods to software firms, and, yes, gold mining stocks - all were caught in the cliché of roller-coaster action for much of August. Volatility increased by all measures, and the only constant was uncertainty – about the markets, economic outlooks, debt worldwide, and most treacherously, the prospects of what sorts of misguided actions governments and central banks might possibly attempt to somehow restore normalcy.

Living as we do today, post-2007, in the shadow of unintended consequences of government actions, Ben Bernanke’s ritual repetition this week of banal platitudes about the Fed’s capabilities and intentions was oddly comforting.

He promised that the Fed is “prepared to employ its tools as appropriate to promote a strong recovery.” And further, that “The Federal Reserve has a range of tools that could be used to proved additional monetary stimulus.”

He informed us that, “We discussed the relative merits and costs of such tools at our August meeting,” and told us there are more meetings coming up, so that there can be more talking about tools: “We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September.”

Comforting, eh? And just to be sure that no one missed the big theme of his remarks (“The Fed is Totally Impotent”), he asserted that “Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.”

Translation: “Congress and the President can get together and think of something.“ So, the ball’s in your court, Mr. Obama, as you prepare for your Labor Day speech about the economy.

We’ll give you one little hint: We've heard enough about “tools.” “Tools” are worthless without “jobs.”

 

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