Gold watching Fed after breaking $1,200

Good Morning,

A sizeable advance in the US dollar undermined gold’s sortie to above the $1,200 level and truncated its ability to maintain that level overnight. Signs of ebbing strength were somewhat in evidence as early as yesterday, when the “wait-and-see” attitude among traders turned to “wait-but-do-not-load-up” ahead of the FOMC’s meeting today. Uncertainty over what the Fed might have up its sleeve following its policy-setting get-together, coupled with a manifest slowing in Chinese imports boosted the greenback and it gained nearly half-a-percent on the trade-weighted index (rising to above the 81 mark overnight).

Adding fuel to the fires of Chinese-oriented jitters, unnamed sources from within the country told Bloomberg that the regulators of China’s banks have ordered them to move off-balance sheet loans made to trust firms onto the official books and asked them to make provisions for possible defaults. Makes one wonder what they know, and what they expect based on what they know.

The aforementioned slippage in Chinese import figures engendered a near 3% drop in the Shanghai Composite Index overnight. The concern continues to be that the government’s efforts to put out the speculative bonfires in the country’s real estate and raw materials sectors may be working –perhaps too well- for anyone to plow huge amounts of additional gambling money into the markets at this point. The rest of the world’s economic recovery also ties into this fading import picture, inasmuch as China has now climbed to the number two economic spot on the global list.

A devastating fire killed sixteen gold mining workers in Yantai and prompted the stoppage of all output while an investigation is underway. The terrible tally in the country’s mines has climbed to more than sixty individuals this month. An average of seven coal miners perishes each working day in the country. Add to that the series of environmental accidents that have been recorded in recent weeks and the picture of an industry that is scrambling perhaps too hard to dig every ounce of stuff possible while safety is disregarded and maintenance deferred, emerges and terrifies.

As we noted in a previous comment, there is another price to gold (and other commodities). This, despite the latest report that shows profits trebling and revenue soaring (98%!) at China National Gold Group Corp. – the country’s largest gold producer. Consider the above before you get carried away with starry-eyed opinions about the “expansion” of the Chinese gold market.

New York spot bullion trading opened with assorted losses across the board this morning. Unable to stand up to dollar strength, and buffeted by emergent profit-taking, gold’s two week uptrend appeared in jeopardy this morning as spot prices fell by more than $10 to very near the $1190.00 level. The actual opening had gold spot bid quoted at $1192.60 the ounce – with a loss of $8.60 while the dollar was quoted at 81.19 on the index.

Black gold fell quite hard this morning, losing nearly $1.50 to stop but one penny short of the $81 per barrel level. All on Fed and China-related jitters. “Gimme a break, the markets set themselves up for such anti-climactic outcomes” quipped one floor trader we chatted with early this wacky morning.

Silver declined 29 cents to start at $18.04. More selling was noted in the noble metals complex, where platinum dropped $15 to the $1527.00 level (what a change after last week’s brief foray to above $1600) while palladium fell $5 to the $471.00 mark. Rhodium remained unchanged at $2120.00 the troy ounce. All eyes and ears on the Fed – this week’s obsession, following last week’s hand-wringing about jobs created and/or lost. What else is new?

As it turns out, the Fed may turn out to move the markets more than interest rates, or policy, or the actual economy. Speculators are already cutting back on previously-made bets that envisioned a Fed ready to give them more candy in the form of ultra-cheap dollars with which to play in the markets.

Now, the same market participants will also have to deal with the latest little bit of statistical data to hit the news wires; the one that shows US nonfarm productivity slipping into negative territory in the second quarter of the current year. Stock futures appeared a little more than upset ahead of the market’s open, showing a near 100-point loss before as well as after the news release. Will the crowd demand more “accommodative candy” on this news?

We still believe that such frenetic expectations may be dashed later today when the Fed might just resort to underlining the “extended period” and “unusual uncertainty” vocabulary it has been using, and little more. There are those who are betting that the Fed will stand pat and implicitly refuse to give into such pressures at this time.

Apocalypse watchers are warming up once again, these days Not just because 2012 is more or less around the corner, as we mentioned yesterday. No, this time, it’s a bit more…verifiable evidence than that being offered by the Mayan calendar. In a devastating piece on the status quo of the US economic reality, Marketwatch’s Paul B. Farrell (picking up on an “insider’s” admissions) indicts the very people (the GOP) who are making most of the anti-Obama noise out there these days.

Yes, the subject of gold is covered in the article. Messrs. Nixon and Friedman were likely set spinning at high RPMs in their respective resting places by the accusations coming from Messrs. Stockman and Farrell, while gold bugs must be feeling…vindicated. Too bad there is no turning of the clocks possible at this juncture (unless you are wielding a sharp pitchfork that is)…despite what some candidates for public office would like us to believe.

Happy trading. See you on the barricades. Not.

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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