Gold dips as Fed apprehensions rise

Good Morning,

Additional gains recorded overnight brought the U.S. dollar very near the 78 mark on the trade-weighted index and contributed to a fresh dip in gold prices down to the $1,326.00 level. Crude oil felt the rising dollar-induced selling heat as well, losing nearly $1 to fall to $81.72 per barrel.

Much of what was seen overnight was due to rising apprehensions related to next Tuesday’s Fed meeting. While most everyone still expects the US central bank to ‘give’ something in order to add some adrenaline to the economic recovery process, the short-dollar/long-commodities crowd is becoming just a tad less certain that the Fed will be all that generous.

Reports in the Wall Street Journal this morning suggest that there might not be another “shock and awe” style accommodation coming from Mr. Bernanke and team. A few hundred billion here, another few hundred billion there, but that is about the extent of what markets are gauging as of this morning (and not enough to make for repeated runs to the topside in gold, and to the bottom in the greenback). Look on the bright side; there are only seven days and a few hours left to wait this one out. A case of “Waiting for Go-dough.” Or, less dough, as the case may turn out to be. The tension is palpable, and growing.

Way too much has been invested into the theory that another $1 to $2 trillion worth of stimulus money is in the pipeline, come next week. An aggressive campaign to sell the dollar has wiped some 5% off of its value on the trade-weighted index in September alone. As regards gold, at least one British trader opined that the metal might dip towards the $1,270.00 value zone when/if Fed-betting starts to abate and the US currency recovers some of its recently lost ground.

Such a scenario is obviously applicable to stocks as well (of late) and they, too, showed a dip in index futures as the spec crowd started to show signs of uncertainty about the size of the Fed’s presumptive gift cheque. More close asset tangos on tap. Part of the apprehensions about the Fed easing issue is related to the school of thought that sees the world economic recovery as potentially being threatened. In other words, easing some (or much) more might just bring with it the seeds that germinate into the monster that ate the expected boost in recovery and killed it, instead.

Spot gold trading opened with an $11.10 per ounce loss this morning, quoted at $1,329.20 as players raced to cover shorts on the USD index (last seen at 77.96). Silver fell on the open as well, losing 26 cents to start the midweek session at $23.60 an ounce. The noble metals fell in concert with the rest of the complex, and platinum shed $8 to the $1,693.00 mark while palladium gave back $10 of Tuesday’s hefty gains to open at $618.00 the ounce.

The largest increase in durable goods orders (once again boosted by 105% higher order bookings for civilian aircraft) since the very start of 2010 further depressed gold and oil prices as they had been rising on the hitherto anemic pace of US economic recovery (and the Fed policy moves that such might engender). The bad news? Orders for capital goods (not planes, but computers, machinery, and such) fell 0.6% indicating a possible slowdown in business investment. More hot and cold patches within the same news item. Par for the course, these days.

In other news, US mortgage applications showed a 3.2% gain in the latest reporting period, stimulated by ultra-low interest rates for home loans. Even so, the 2010 home loan tally for the year might come in at under $500 billion, making this the lowest level of lending since 1993. The good news? Projections indicate that 2011’s lending might rise very near to $1 trillion. As they say: buy now, beat the rush.

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