Gold supported by ongoing societal unrest

On-going and spreading societal unrest in North Africa and the Middle East (Libya, Yemen, Iran, Bahrain all experienced varying degrees of turmoil over the past 24 hours) offered support to gold prices on Thursday, as did a weaker US dollar during the night. The greenback however recovered a bit following the release of US CPI and jobless claims data early in the New York trading session. Freshly-filed jobless benefits applications experienced a modest (25,000) jump during the latest reporting period being tracked by the US Labor Department. However, such filings have been on a downward-pointing curve ever since they peaked above the half-million mark last August.

Meanwhile, US consumer prices rose 0.4% last month, but the Fed remains relatively ‘calm’ about such figures as it sees very little in terms of wage pressures to the upside. Nevertheless, the release of Fed meeting minutes yesterday indicated that Federal Reserve officials were confident that the economy was on firmer footing and that they anticipate better US GDP numbers ahead.

Some of what the Fed expects from the US economy in coming months was reflected in this morning’s Philadelphia Fed factory index figures. The metric showed a jump to the highest level of manufacturing activity in the region since 2004. The gauge’s reading was 35.9 this month, and was far larger than what economists had anticipated (namely a more modest rise to near 21).

Thus, it should come as no surprise that, at the Fed’s January meeting, some of the policymakers were noted to be “wondering” as to whether the central bank could now scale back its $600 billion QE2 program. The meeting summary saw “a few members [who] noted that additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size of the purchase program.”

No change in the cards for US interest rates just yet, but, as was noted yesterday, some 70% of investors do envisage the Fed beginning its “mopping-up” operations before year-end. The same could be said about the UK, where the recent reading of 4% inflation levels has “paved the way” for interest rate hikes and prompted BoE policymaker Andrew Sentence to…sentence low interest rates to an early execution. See the sterling jump against a basket of nine other currencies this morning, even as Mr. King remains reluctant to start lifting rates.

Spot gold trading opened with a $5.60 per ounce gain this morning, and the precious metal was quoted at $1,381.20 on the bid side. Silver added 11 cents to open at the $30.59 level on the bid side and it later touched and then backed off of the $31.00 round figure resistance point. For a fourth time now, silver is bumping up against major resistance walls thought to reside between $31 and $31.50 an ounce. More on silver market physical ebb and flow follows below.

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