U.S. Treasuries and crude oil went their merry opposite ways overnight, as the former held near their lows over in Europe on anticipation the Fed may engage in fresh bond purchases, and the latter climbed on bets that the U.S. economy will recover at a better pace, perhaps owing to such Fed largesse.
Gold prices held steady within a narrow ($1203-$1211) range as overseas player observed the U.S. dollar hovering near the 80.50 mark on the trade-weighted index while the euro advanced to $1.325 against it- a three-month high. The Fed meets tomorrow amid a mixed bag of signs that show the U.S. recovery as still being hampered by anemic job creation, little in the way of lending (by banks) and more in the way of saving (by households).
Not that such sluggishness has not characterized the initial phases of previous recoveries from recessions; it appears however, that (when it comes to speculators at least) folks these days want instant results, like, yesterday. When they do not get them, a variety of assets are generally pounced upon whilst others are given a favorable trading nod. Of course, there are still those for whom none of this is good enough anyway, and are actively rooting for a global fall into a fresh crisis – because, you know, they are prepared by having allocated 50 or 90% to what they believe will save their hide.
Indian gold demand retreated over the weekend as above-$1,200 gold discouraged would-be buyers from sorties to their nearest bazaar. Dealers were quoted as expecting gold premia to drop from its current $1.50 per ounce nearer to $0.25 per ounce in coming days if the price strength continues to be manifest. At least one festival is due in a couple of weeks, that of Raksha Bandhan. It remains to be seen if the calendar can overcome price-sensitivity among those wishing to buy some yellow metal.
By the way, gold is not the only commodity to which locals are sensitive when it comes to price tags; India’s cotton mills are once again crossing their arms and saying ‘No!’ to imports of certain commodities. A couple of years ago, cotton mills refused to import cotton. These days, flour mills in the country are refusing to bring in grain to be milled from Australia and the Ukraine. Guess why. Meanwhile, the weaker U.S. dollar was cited as an excuse by [carry] traders to load up on copper. The orange metal has fallen last week as news that China’s domestic lenders’ stress test parameters called for scenarios of possible 60% declines in real estate values.
Gold opened the new trading week in New York with a $1.70 gain and was quoted at $1207.40 per troy ounce basis spot bid. This took place against a U.S. dollar at 80.57 on the index and a near 90-cent gain in the price of a barrel of black gold (last seen at $81.57). The euro rose to $1.326 at last check. Speculative focus remains on the Fed and what it might do as regards easing (or what might be interpreted as easing) or not do after it meets this week.
The Fed, may, however, surprise the aggressive specs just yet. Several analysts have opined that although the language the central bank might use come statement day could be more liberally sprinkled with words of caution (those very words that the gambling crowd interprets as QE2 on the launch pad), the action part of the equation may not have anything to offer to bettors. Not yet, anyway.
Recycling the ‘extended period’ mantra along with a fresh dose of ‘unusual uncertainties’ may do the trick at least until a fresh set of economic statistics that make the matter of asset purchases and/or some kind of easing more urgent. Then again, surprises to the upside may yet filter into the picture and make the Fed look wise in not having acted in haste, just because carry traders are screaming ‘buy’ (assets).
Jon Nadler is a senior analyst for Kitco Metals Inc. North America