Gold range bound ahead of elections and QE2

Good Morning,

Another overnight period of broad ranges and of pre-guessing the US Fed unfolded in the precious metals complex, most of it being subject once again to the fluctuations in the US dollar. Gold prices traded with the $1,335 - $1,355 channel, silver saw a near 50 cent range and platinum and palladium also swung within $20-$30 spans. At opening time on Friday however, the complex was broadly higher despite a 0.30 gain in the greenback on the trade-weighted index.

Gold spot prices opened with a $4.00 per ounce gain and were quoted at $1,348.10 as against the 77.55 mark reached by the dollar on the index as the Kitco Gold Index showed that this time around predominant gold buying was the prime moving agent in the price equation. Pre-weekend book-squaring and attempts to retrace some of last week’s near 3 percent pullback were also cited as catalysts for the opening moves. While book-squaring-induced ‘paring’ could come into the picture later in the day, the initial trends showed sufficient levels of dollar-bearishness still at work in the markets.

Silver spot prices were ahead by one dime on the open, quoted at $24.13 on the bid-side, while platinum gained $8.00 to open at $1,697.00 and palladium rose by a hefty $13.00 (1.7%) to start the final session of the week at $637.00 per ounce. The imminent IPO by General Motors reveals an automotive giant (bankrupt not that long ago) that is preparing for a bright future by investing in the development of smaller cars and is making plans to hire workers while getting rid of debt.

Friday’s markets were eagerly awaiting US GDP and consumer sentiment data but, to be fair, most of the ebb and flow in trading sentiment was still being dominated by one overriding preoccupation; that of what the Fed might (or might not) announce on Wednesday.

GDP data revealed that US output grew at a nearly 18% faster pace in Q3 as the fallout from improving consumer spending helped cement the vigor in the on-going recovery process. Output in the nation’s various economic enterprises rose by 2% during the quarter (as against the 1.7% recorded in Q2) and albeit it was still shy of the levels needed in order to make a sizeable dent in the joblessness picture, the gain was underscoring the return of that nearly-extinct species at the local mall in recent quarters; the American shopper. Spending among US consumers (whose household purchases still make up nearly 70% of the American economy) rose by 2.6% in the period, making it the strongest such gain since Q4 of 2006 (just before the ‘good old days’ came to an abrupt halt).

The GDP numbers (at least initially), had an opposite and counterintuitive effect on the US dollar and helped bullion advance a bit nearer to the $1,350.00 mark in another manifestation that players expect that nothing short of spectacular economic recovery data will temper the Fed’s accommodative stance and the size of the ‘package’ it may intend to deliver next week. In today’s case, a GDP rising by 2% is seen as still anemic enough to virtually guarantee that which the markets have already factored in ahead of next week’s US central bank meeting.

The one feature of the Commerce Department’s report of the US economy that was most likely being zeroed in upon by the spec trade this morning was, evidently, the finding that US inflation cooled amid this still-rising growth trend (as reflected in price cuts at, say, Wal-Mart). Falling inflation is what is obsessing the Fed, and falling inflation is what it intends to combat with its second round of accommodation. By the time the 9 o’clock hour rolled around in New York, the US dollar was only ahead by 0.05 on the aforementioned index.

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