‘Osama effect’ deflates gold

Early May proved to be historic in global and Canadian geopolitics.

• As just about everyone knows, U.S. Navy SEALs killed terrorist mastermind Osama bin Laden during a daring raid on a fortified compound in Abbottabad, a military town north of Islamabad, Pakistan.

Fresh details of the raid and the intelligence work behind it are emerging each day in the mainstream media, and are fit for a Tom Clancy novel or X-box game.

The assassination was widely and effusively praised in the West and many other spots around the globe, and looks to have had some psychological effect in North American markets. The U.S. dollar index, while not exactly rebounding strongly from its latest 4-month downtrend, at least stopped dropping for a few days, and U.S. stock markets went sideways. The elation was seen more in U.S. consumer-confidence indices, which spiked in the days following the news.

The “Osama effect” was more pronounced in the commodities, with precious metals and oil prices coming sharply off recent highs that had reflected a ratcheting up of unrest this year in multiple Arab countries. Post-Osama, gold dropped more than US$60 to below US$1,520 per oz., silver plummeted US$7 to below US$40 per oz., and benchmark oil prices were off several dollars.

Presumably this is an expression of wider sentiment that the “War on Terror” has closed a major chapter, and it will now be politically more palatable in Western countries to accelerate the planned winding down of expensive NATO war operations in Afghanistan, more in tandem with ongoing U.S. troop withdrawals from Iraq.

• In Canada, what seemed like a dull federal election at its onset in late March turned out to be one of the country’s most dramatic one in years: the Conservative Party achieved a majority government after years of minority rule, and gained power using voter bases in Ontario and the West; the perennial third-party New Democratic Party roared to Official Opposition status with strong, last-minute support in Quebec; the separatist Bloc Quebecois party was obliterated; the once-proud Liberal party was reduced to a rump 34 seats; and the 28-year-old Green party achieved its first-ever seat.

For miners in Canada, the results are a relief. There will be more of the same, with small corporate tax cuts going through in the next budget, as well as an extension to the beloved flow-through share tax break. There also won’t be any new taxes on carbon emissions.

• For gold enthusiasts, the end of April held another bit of history, with the U.S. Federal Reserve Chairman Ben Bernanke holding the first-ever press conference for a Fed chief.

While the Fed’s monetary actions have long come under fire from gold bugs, an understanding of the Fed’s central role in debasing the U.S. dollar is now starting to reach mainstream audiences in the U.S. via right-wing talk radio and TV shows such as The Glenn Beck Show. It’s this new bad-mouthing of the notoriously secretive Fed in the U.S. media these past couple of years that looks to have prompted Bernanke’s unusual availability.

In fact, the appearance was similar to any of Bernanke’s widely viewed congressional testimonies, with the chairman stating bluntly that, “we currently have a fiscal deficit that is simply not sustainable over the longer term, and if it’s not addressed it will have significant consequences for financial stability, for economic growth, and for our standard of living…” 

Bernanke also said the Fed would complete its US$600-billion bond buying program in June, and keep interest rates low for an “extended period.”

Gold prices immediately took off after Bernanke spoke, hitting new all-time nominal highs above US$1,570 per oz. for several days until news of bin Laden’s killing deflated the gold market.

• Glencore chairman Simon Murray put his foot in it with widely condemned, sexist remarks to the Sunday Telegraph. His rant, for which he apologized, included comments that women in the workplace had limited capacity because they are “not so ambitious in business” and have a “tendency not to be so involved quite often,” and that “pregnant ladies have nine months off.”

The Swiss commodities-trading behemoth – infamous for its founding by the pardoned fugitive from U.S. justice, Frank Rich – had brought in Murray only 10 days earlier to steer the company’s upcoming, epochal US$60-billion initial public offering. Glencore has no women on its board or among its top executive team.