Gold continues to rise on fear factors

Good Morning,

Thursday precious metals markets’ opening tallies offered more of the same fare as has been on tap since at least the middle of the about-to-conclude month; relentless fund sorties based on perceptions of what might be. Gold notched a $3.40 gain out of the starting gate this morning, quoted at $1,313.30 on the bid-side as the certainty over another round of Fed easing continued to be the principal sentiment on display among speculators.

Such bets were manifest despite the apparent rise in contradictory rhetoric on offer by the Fed’s own officials, and perhaps nowhere more than in the still-sinking dollar (last seen at 78.56 on the index). “Internecine warfare of words” would be a better way to characterize the situation inside the Fed, actually.

By now, we have heard from pretty much every Fed voting member on the subject of the efficacy of further Fed accommodation. One thing that is fairly clear is that aside from a very vocal Eric Rosengren (Boston Fed) there is a rising chorus of Fed membership that is either opposed to easing or believes it would be wasted on the still-anemic (and likely to remain so) US economic recovery. The Philly Fed’s Mr. Plosser is flat-out opposed to such additional asset purchases and argues that it would take manifest deflation of a much more serious nature to convince him otherwise.

Whether or not this is about allowing for more time for the first round of easing to take hold, or the political expediency of stimulating around upcoming election time, the Fed’s members are now at odds with each other in a manner not seen for quite some time within the walls of the marble building.

Yet, consensus among Fed watchers appears to be that Mr. Bernanke has a sufficient number of votes which might give him the green light to buy bonds with, if that is what is required. The Fed’s apparent ‘whatever it takes’ mentality aimed at thwarting deflation has been stoking the appetite for shiny metals among spec funds for the better part of September.

As the last day of the month draws to a close, a couple of other potentially pro-easing background items made their way to the headlines. Chief among these was the number 1.7%. That is the level of US economic growth to which the slowdown in the recovery has extended in Q2 following its 3.7% pace recorded in the first quarter. Albeit the number entailed a slight upward revision from the previous 1.6% estimate, the net loss of 2% off the pace of growth presents perhaps the final domino to tilt the Fed into the direction of giving something to the economy that it believes might heat things up.

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