Gold trades higher as dollar slips

In the Lead: “You Want Frites With That?”

Alas, the mixed news from the US economic front did not appear to do the trick for the metals, just yet. It did help European equity markets however and it narrowed the losses being shown in US stock market futures as well. The US dollar slipped lower in the wake of CPI data that showed consumer prices rising 3.9% over the past 12 months, but there was also a reported 15% spike in housing starts in the US (to a 17-month high) reported. Markets appeared to focus on the core inflation figure (at 0.1%) which recorded its smallest gain since the month of March this morning and came in under economists’ expectations.

Also running under expectations, there is another worry item: China’s trade outlook. The country’s Commerce Ministry warned today that the rest of 2011 and the first trimester of 2012 do not appear to look very promising for imports and exports. We cited some of the reasons for this in yesterday’s article. The markets did not take very well to the news that China’s growth rate came in at only 9.1% yesterday.

With the world left with but this sole engine of growth on the wing, the apprehensions surrounding the growth figure are understandable. We cannot yet count on Europe to give the needed thrust to keep thing aloft. Meanwhile, Japan and the US continue to sputter and show a rather uneven spin in their economic motors. In fact, it has been ascertained that the US requires a second “productivity miracle” to become manifest at this time. Otherwise, falling per-worker-output will likely result in shrinkage of income gains, more joblessness, and even larger federal deficits.

Little wonder then, that the US’ and the world’s central bankers continue to pedal as hard as they can in an effort to keep things in the air; they have met the alternative and they like it not. Boston Fed President Rosengren stated that in the wake of the European crisis there is a pressing need for regulators to clean up the global banking system once and for all. If left to fester, the problems in the niche could only lead to further debt downgrades, more crises, and the toppling of governments.

Fed Chairman Bernanke reported that his institution learned a thing or two from the crisis of 2008. Among those lessons is the fact that a central bank needs to have a dual mandate. Controlling inflation while also keeping the banking system above the waterline is that two-pronged (and less than easy) task. There are plenty of Fed critics (some would have the Chairman fired by now) who talk a blue streak but who have offered no concrete solutions to the problems. For its part, the Fed will do what it can to also talk more and not just act; Mr. Bernanke indicated that the US central bank will become even more explicit in relaying its sausage-making process to legislators and the public as we go forward.

Back to dollar-watch. Seems like about the only game in town right about now.

Until tomorrow,

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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