Gold touches $1,626 despite low physical demand

In the Lead: “A Plan B from DC?”

The team of market analysts at Standard Bank notes that: “Palladium garnered a lot of interest yesterday, swiftly gaining $27 to reach a five-month high. The metal has managed to hold on to most of these gains. For now investor confidence in palladium still seems fairly strong. However, as we mentioned on Monday we would be cautious, given the recent build-up in short speculative positions in palladium.”

Carmaker Nissan’s profit fell 20% in the second quarter of the year; a strong yen and the Sendai quake were blamed for the results, which still exceeded analysts’ expectations. Meanwhile, automaker Daimler raised its 2011 sales target by 50,000 units as against BMW’s projected 100,000 unit sales target. Daimler, the world’s third largest manufacturer of luxury cars is having a bit of trouble in keeping up with its rivals BMW and Audi when it comes to sales growth. Some of the problem is simply its ability to keep up with demand growth in certain booming markets (China, for example).

There appears to be – despite remaining angst on the issues of the US debt – a growing sense among sensible market participants that a) the world’s largest debtor will not default next Tuesday, and that b) the holders of its already issued debt have little in the way of alternative places to put their money and they also do no have the luxury of somehow dumping that which they already hold. As of this morning, the congressional vote on Speaker Boehner’s debt reduction plan has been pushed back to tomorrow’s session.

Mr. Boehner, in the interim, was presumably hard at work trying to re-write the document as the Congressional Budget Office found it to be short of its advertised savings of $1.2 trillion by at least $350 billion and rejected it. Mr. Obama has already said he would veto whatever lands on his desk from Mr. Boehner’s office and has opted to back Senator Reid’s proposal.

Mr. Reid’s $2.7 trillion debt shrinkage plan does not include tax increases despite indications that nearly 60% of Americans want a mix of tax hikes/spending cuts to be integral in such future budgets. It does however contain – in Mr. Reid’s own words – “everything Republicans have demanded, wrapped in a bow and delivered to their door.”

Albeit Mr. Reid’s plan also does not include the obviously necessary higher revenue component (read: higher taxes) to bring the country’s budget closer to being balanced, it does raise the debt limit sufficiently to keep the government functioning through 2013. The White House also let it be known yesterday that officials are working on “plan B” and that it is cognizant of the fact that the global economy cannot afford to endure the potential effects of a US default or debt downgrade.

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