Gold and dollar making tandem gains

In the Lead: “Debt dimensions: From nations to individuals”

Mild profit-taking emerged as the midweek metals’ trading session got underway in New York this morning. Following Tuesday’s aggressive pushes to the upside in various commodities, the buying appetite faded a tad overnight in the wake of China’s unsurprising announcement that it will hike interest rates yet again, come tomorrow. This will be the third interest rate hike that the Chinese central bank has set into motion in the current year.

The only surprise in the matter was the fact that the PBOC did not wait until Sunday night to take action, as had been speculated yesterday. The country is tackling the strongest inflationary headwinds to be felt since the summer of 2008. As well, after Moody’s sliced another notch from Portugal’s credit rating (this time, let’s call it “junk”) the US dollar picked up additional energy and rose to the 75.05 level on the trade-weighted index; a factor that was not lost on the metals’ specs this morning.

Spot gold dealings opened with a $2.40 per ounce loss in New York and the bid-side quote came in at $1,513.90 against the stronger greenback. Crude oil’s 58-cent slippage to $96.21 per barrel helped depress the yellow metal somewhat as well. Black gold gained nearly $2 on Tuesday, for no apparent logical reason (certainly, the weaker euro and lackluster US factory data were not contributors to its rise). Specs at play in thin, summertime markets, making for outsized moves in assets that would prefer to be snoozing; what else is new?

Silver fell by 11 cents on the open; it was quoted at $35.37 basis spot bid. Platinum and palladium lost $6 and $2 respectively, to start off at $1,733.00 and at $770.00 per ounce in New York. No changes were noted in rhodium; the noble metal was still parked at $1,925.00 on the bid quote. At this juncture, those market participants who are not off at the shore enjoying the breezes will turn their attention to the weekly initial unemployment claims and the non-farm payroll numbers due tomorrow and on Friday.

In the meantime, additional gains in the metals ought not to be ruled out as the European debt turmoil still presents chain-reaction-like potential dangers and investors might wish to remain on the safe side. As such, we could have a second day of tandem dollar-gold gains. The euro could of course receive a bit of a boost from tomorrow’s almost certain to come interest rate hike by the ECB. Prior to that event we will also hear from the Bank of England and its monetary policy committee.

As regards today’s ISM service sector index figures, well, they did show a bit of shrinkage in June. The index fell to 53.3% from 54.6% in May; that was about six-tenths of a percent worse than economists had anticipated. However, the reading still indicates expansion as opposed to contraction as it remains above to 50% mark. The greenback retained its early gain in the wake of the ISM data and it remained above the 75.05 level as the mid-morning wore on.

Another item certain to draw the markets’ and the media’s interest tomorrow will be the bi-partisan talks to be held at the White House on the issues of America’s debt ceiling and spending cuts. President Obama made a second, public plea yesterday and urged leaders of both US political parties to re-group and aim toward finalizing an agreement on these topics. Mr. Obama also advised said leaders to “leave their ultimatums at the door” and to do the same with political rhetoric in order to do that which would be best for the US economy and the people. The August 2 potential debt default date still looms and Mr. Obama does not want the resolution of this matter to “come down to the last second.”

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