Gold rides monetary policy wave to $1,472

“The loose money policies, as governments have tried to boost their economies, have also sparked fears of inflation. A Federal Reserve official said Friday that now is not time to change the course on monetary policy. "The future permits a degree of patience as regards monetary policy," Federal Reserve Bank of Atlanta President Dennis Lockhart said. Flagging the "halting and fragile quality" of the economy as it recovers, the official said "the process of restoration of full economic strength with higher employment continues to require support."

The ECB rate hike also proved to play a passing role on traders’ minds even as a fresh Bloomberg survey of economists found that most expect the central bank to once again hike rates in July as well as in October, and bring them to 1.5% and eventually 1.75% this year, with the trend stretching into 2012, by the end of which we might see them at 2.75%.

This upcoming series of ECB actions has been labeled as a “hefty rate increase cycle” by market watchers. The onus is now on the Fed to try to keep up. Commodity market players are clearly grinning in Messrs. Trichet & Bernanke’s faces at the present time and continue to fan the very price spikes which Mr. Trichet’s first salvo was aimed at toppling.

Fears that the US government might be partially or fully shut down in coming hours sent the US dollar reeling towards fresh lows against the euro (which traded as high as $1.442 against it) and that drop fueled additional massive buying of commodities as the final trading session of the week got underway. A cessation of government activities might negatively impact US GDP by 0.02 percent, even if it turns out to be short-lived.

While few argue that the shutdown that might result from the discord among America’s political parties is a “positive” in terms of public perception or in terms of some of the services that might be impacted by it, the apprehensions at hand also appear to ignore the fact that the last time the US experienced such a phenomenon, the result was the production of a balanced budget.

While the posturing offered today by the Republican and Tea Party membership in the US has led to hard-money flavored talk about dangers of US defaults and some kind of imminent dollar collapse, the reality is that bringing the national deficit under control and into balance is generally best accomplished by stopping further additions to it.

It is now all down to bickering about $60 billion worth of cuts to be, or not to be made, but, truthfully, neither party has come up with reductions in spending that are as serious as had originally been proposed by them. Historically speaking, forcing the last shutdown in late 1995 proved to be a huge strategic error for the Gingrich-led faction and it basically guaranteed the reelection of then President Clinton. Everyone is now waiting to see how things might turn out this time around.

Keep the countdown clock handy.

Until Monday,

Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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