Gold hits new records on Fed signals

Good Morning,

Dissecting the minutes of the Fed meeting offered a fresh opportunity to dollar-sellers to do more of the same overnight. The surprisingly dovish language that was contained in the notes ignited expectations of the Fed easing next month among the few remaining holdouts in the market.

This, despite Goldman Sachs’ cautionary finding that some $750 billion and up to $1 trillion worth of accommodation is already priced into the markets. Curiously, that was the same Goldman Sachs that envisions $1,650.00 gold within twelve months’ time; as if the metal – at $1,360.00 – has not priced in such largesse already.

And, yes, it was the same Goldman that sees the Fed’s expected easing as helping the U.S. avoid the “very bad” fallout from a renewed recession. Goldman sees the American economy as only “fairly bad” in the coming half-to-three-quarter of a year (a lot to say, all in a day, by one firm; a firm whose seat at the Fed is filled by…Mr. Dudley).

There is no telling what disappointment might result should the Fed come up short of such generous expectations. Meanwhile, the most vocal among those pushing for said accommodation, William Dudley, framed the Fed’s presumptively imminent action by stating that he is “…mindful that [the Fed’s actions] could be interpreted as a policy of monetizing the federal debt. However, I regard this view to be fundamentally mistaken. It misses the point of what would be motivating the Federal Reserve.” Well, we know at least that which is motivating the appetite among risk-takers despite such reassuring language: the fact that they pay no attention to it and see only the outcome of it in perpetually cheaper to play-with dollars.

Reflecting much of the above, but mainly the dollar’s sinking to very near the 77 level on the index yet again, gold prices opened higher this morning, notching an $8.70 gain and were quoted at $1,359.20 on the bid-side of spot. Similar conditions were manifest in the other precious as well as noble and base metals, as the trade got ‘carried’ away by the heady aroma of ultra-cheap greenbacks, and visions of more of the same, yet to come. Headlines that normally do not co-exist- “Stocks Get Lift From Fed Minutes” and “Gold Near One-Week High on Fed Signals” –continued to co-exist as asset shopping sprees continued among hedge funds.

Silver popped 24 cents higher and opened with a quote at $23.55 the ounce, while platinum added $23 for good measure, opening but one dollar short of the $1,700.00 mark. Palladium climbed $9 on the open, and was quoted at $590.00 per troy ounce. Not much to report in terms of change for rhodium, as the metal showed a bid at $2,200.00 per ounce, matching yesterday’s final quote. Crude oil was up. Copper was “seen at $4” (soon?) by RBC analysts.

That the dollar is now approaching certain solid, long-term support foundations [anywhere in the range of from 74 to 77 on the trade-weighted index], while the entire commodities complex is once again being wrested away from fair values that are based on supply/demand flows did not unnerve spec fund players in the least, judging by this morning’s action.

If the Fed needs any further validation as to the ‘timeliness’ of an easing move, well, it needs look no further than to the forecast that inflation will fall well short of its [2 percent] target for the next couple of years. Then again, the same projection for a lack of inflation is likely prompting the US central bank to try to induce Americans to expect that inflation will pick up the pace in the future; a prospect that could (hopefully) lead them to spend now (as in: yesterday, or sooner). Actively targeting higher inflation – what a concept. No stranger than the ‘desirable levels of inflation’ language we had heard from Tokyo, circa seven years ago. Problem is, it does not always materialize, despite one’s best efforts (see the same Japan).

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