Gold hit as commodities dive after Fed hints

ETF palladium holdings, in fact, have fallen to their lowest level of the current year. The analytical team at SB opines that albeit this does not make for a definition of a “weak” palladium market, the potential for short-term underperformance vis a vis other precious metals is manifest at this juncture. Palladium significantly outperformed all other precious metals in 2010 (basically, it doubled in value while gold for example rose about 29%).

The trading sentiment was mostly negative this morning, as players focused on the upcoming disruptions in the automobile niche that will be engendered by the virtual disintegration of the automotive supply chains (which are being called as the world’s most complex) in Japan. Everything that goes into making a Japanese car is currently difficult to produce, locate, and/or deliver to assembly lines; and, there are roughly 3,000 such components that make up your average vehicle.

Certain parts manufacturers remain without electrical power, gas or water. Add all this up and the world’s second largest source of automobiles is basically out of the equation. Analysts expect April’s situation to only get worse, as the current supply chain difficulties really begin to be felt overseas as well.

In the background, the US dollar gained 0.24 on the trade-weighted index (reaching 76.39) and crude oil dropped $1.09 (to $104.31) as the combination of factors cited in the opening of this morning’s analysis took its toll on market participants and their respective speculative sentiment. The GDP data’s reverberations were cited as an integral catalyst to this morning’s selling action by several traders we polled in New York during the early hours on Monday.

Indeed, the manifestly improving rate at which US economic conditions are proceeding is prompting speculators to reassess the scope and the timing of the Fed’s liquidity withdrawal strategies. Such re-evaluation of the US central bank’s roadmap for 2011 and 2012 was at the forefront of hedge fund behavior during January and it led to sizeable declines in certain safe-haven oriented and/or carry-trade-inflated commodities.

Speculators may also be taking Fed policymakers’ words a tad more seriously, now that such words are being uttered while being backed by concrete evidence that – spotty as it might be in certain regards – the economy (and employment) in the US is on the mend. Just this morning, the Commerce Department built upon that type of ‘evidence’ with the release of fresh data that showed that American consumers spent more than had been forecast for February.

One gauge of such spending, the personal consumption expenditure index, showed its best gain for a given month since the dark days of the summer of 2008. Rising incomes helped the aforementioned spending trend pick up steam, as did the addition of jobs in the US for the sixth consecutive month. Spending rose despite the headline-making gains in energy and food prices (which are still seen as transitory by the Fed).

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