Gold sees minor losses as PBOC raises rates

Tuesday’s trading action in New York opened on a slightly defensive note following an overnight interest rate hike by the Chinese central bank and a half-dollar drop in crude oil values (to $107.92 per barrel) that came on the back of rising perceptions that Col. Gaddafi’s days in power are now numbered (possibly in the single digits). Traders have come very close to perceiving Libya (its oil output, anyway) as being “back in business” as rebel forces might be days away from selling their first tanker’s worth of crude to the markets under different “management.” Mr. G’s sons are meanwhile purported to be offering their Papa’s ouster and a transition to a constitutional democracy. Alas, they have a bit of a …credibility problem.

Spot gold dealings opened with a small, $0.90 per ounce loss, quoted at $1,433.60 as against a 0.13 gain in the US dollar on the trade-weighted index. A brief spike to $1,440 followed gold’s opening as buyers once again attempted to test overhead resistance but then pulled back for a respite. The greenback gained a bit of traction against the euro as – despite the imminent ECB rate hike – the region’s common currency is still “at risk” from the lingering peripheral country debt issues.

Spot silver was off by 17 cents at the opening in New York, quoted at $38.45 per ounce after having scaled fresh peaks at $38.82 in Asian overnight dealings. The near-term bullish case for silver remained in focus among speculators following the breach of resistance in the mid-$38 range yesterday. Elliot Wave analysis opines that “as improbable as it seems, if silver does not turn lower soon, a blow-off could develop that rivals the vertical ascent and subsequent crash that created the price peak that has stood for 31 years.”

Platinum and palladium fell modestly this morning, but still appeared to be discounting the disruptions in Japanese automobile output that have now resulted in soon-to-come interruptions in production at various US facilities of various popular nameplates. Platinum dropped $1 to ease to the $1,784.00 mark while palladium lost $4 to open at the $781.00 per ounce price level.

Rhodium remained still at $2,330.00 the ounce. The speculative focus in that niche remains manifest and players will be monitoring the in/out flows of PGM-based ETFs for clues to subsequent market direction. On the market’s radar as well, the approaching deadline (May 9) for the submission of indigenization plans by mining firms operating in Zimbabwe.

It appears now that this week is shaping up as “central banking festival week.” Having extended a very generous helping hand to various caving economies since the global economic upheaval began, the world’s monetary officials have now apparently come to that pivotal fork in the road where they must choose a different path, lest the inflation bogey becomes an actual threat and not just something that commodity and currency traders are trying to scare the rest of us with via their aggressive betting. By all reasonable market metrics, such bets have been factoring in inflation rates that compute the desired targets being aimed for by central banks several times over, and then some. This may be the first week of this year when their bluff could be called. Read on:

Chinese monetary authorities made good on Premier Wen’s promises to fight rising inflation and enacted a one-quarter point interest rate hike overnight. The adjustment in rates was the fourth one since the beginning of the financial crisis and it was clearly aimed at constraining the threat of various bubbles that are seen forming within the planet’s still fastest-growing economy. The PBOC’s benchmark lending rate thus becomes 6.31 percent effective from tomorrow and it signals its commitment to keep the “inflation tiger” that Premier Wen has warned about, caged and securely sedated. Mr. Wen has described said animal as a threat to social order in his country.

Joining the ranks of his hawkish fellow colleagues, Fed Chairman Bernanke said, in a much-anticipated speech in Stone Mountain, Georgia late last night that the US version of that same ferocious feline “must be watched extremely closely.” Currency strategists immediately noted that the markets may well be underestimating the speed and degree of the Fed’s imminent shift in monetary policy. The last time Mr. Bernanke made such references to inflation and the need to monitor its pace was on March 1 and it was followed by a similarly hawkish FOMC communiqué on March 15 of last month.

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