Gold decouples from dollar and continues to soar

Arrigato Gozaimasu

Virtual Metals’ consultant Carl Firman goes one step further and cautions that "if gold miners, seeing the price reaching this far, are tempted to lock in prices, it would exaggerate a move downward in the gold price." -this, notwithstanding the fact that most of the Q1 hedging activities in question were related to the securing of financing for certain expansion projects. At the end of the day, it is the small remaining amount of gold on the global hedge book (150 or so tonnes) that matters as we go forward…so to speak.

The last time that the U.S. dollar leaped by nearly 1.10 on the trade weighted index in a matter of minutes was…well, it is difficult to summon up that memory. A “Thank you, Bank of Japan” card will be on Mr. Geithner’s to-do list later today. Enough was enough for the BoJ and it set out to sell the stuffing out of the yen (and buy dollars in a big way) overnight as it also pledged to give the Japanese economy a ten trillion yen adrenaline injection to come.

The BoJ followed the Swiss National Bank in acting to curb currency gains of the unwelcome kind this week. Both official institutions must be grumbling at having to have done this and are probably uttering certain (for now silent) expletives in the direction of Washington which they (partially at least) see as responsible for the developments that forced them to act in this overt manner. For certain countries however, there appears to be no alternative to intervention; not if they are heavily export-oriented ones.

Another central bank that is also a busy bee today is the ECB. Its head, Mr. Trichet, is expected to spend his news conference today mainly shielding himself from having to answer tough questions related to the renewed global market turmoil and to the European situation in particular. His team of policymakers meets today to discuss the potential resumption of eurozone government bonds in an effort to curb the spreading of the debt contagion over to Italy and to Spain. Bettors are wagering no ‘bake-in’ rate hike announcement by Mr. Trichet at this juncture, tough anti-inflation rhetoric notwithstanding.

The latter country did manage to pass a relatively tough debt test today as it auctioned nearly $5 billion worth of bonds; but, it had to do so at a price. That “price” was the highest yield (4.8% and 4.9%) for said (2014 and 2015-dated) bonds since the birth of the common currency more than a decade ago. Demand for the obligations was termed as “decent.” The yields, on the other hand, appear “indecent” but, hey, what a (certain PIIGS) country to do if it wants to sell that paper? Pay up, that’s what.

Finally, let’s look over to the U.S. Fed and to the U.S. economy. Of late, this requires a dose of averted vision as the scene is not pretty. The stock market is apparently pricing in a recession in the making if its latest behavior is to be taken at face value. The string of bad/ugly data available to parse is growing and making most everyone nervous. Everything from the ISM services and manufacturing indices to the announced job cuts to consumer spending to the US GDP indicates that the country experienced the poorest six-month conditions economically speaking since the Great Recession ended in Q2 of 2009.

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