Gold watching Fed and Eurozone for direction

In the Lead: “Buy the Rumor, Sell the Fact. Lather, Rinse, Repeat.”

In fact, it appears that Wall Street will now be listening intently to what the Fed Chief might have to say in coming hours when he testifies in front of Congress. The dovish Fed sparked an asset rally that has been with us since January but observers have noted a major disconnect between the near-zero-rate ‘pledge’ (into 2014!) and the projections for rate hikes coming from the Fed’s own members as well as from the improving US economic metrics. Moreover, any further QE also appears in doubt. Quite a few Fed officials are strongly opposing any more QE. Dallas Federal Reserve Bank President Richard Fisher, admittedly a hawk, called the idea of another round of asset purchases “wishful thinking” by Wall Street.

On the other hand, economic expansion in India appears to have hits quite a bump in the road. That country’s growth has slowed to 6.1% in the final trimester of last year and that would make this the lowest pace of progress since 2009. The development places the RBI in a very difficult spot at this juncture. Stimulate by cutting rates? Hold tight because of inflationary pressures? Keep watching and read reports by the World Bank that argue for a generalized slowdown among the emerging and developing economies and chalk it up to the ‘cycle?’ No easy answer is at hand.

The same World Bank has also warned that China is headed for a potential economic collapse unless major reforms are undertaken very soon. In one of his most foreboding pieces to date, Marketwatch contributor Paul B. Farrell cites the World Bank’s warning “that China’s corrupt state-owned companies have created a Chinese Super Rich class aligning communist party bosses and corporate executives,” and concludes that “neither has any interest in the World Bank’s call for reforming their incestuous economic system.”

Fresh off the Marketwatch presses: “North Korea has agreed to a moratorium on the testing of its nuclear and long-range missiles, in addition to the suspension of uranium enrichment for its nuclear power plant, according to the Associated Press on Wednesday. As part of the agreement, North Korea has also agreed to allow inspectors from the International Atomic Energy Agency to confirm the disablement of its reactor at Yongbyon. In return for its cooperation, the U.S. has proposed to ship about 240,000 metric tons of food to North Korea.”

Memo to Mr. Ahmadinejad: Are You Hungry Yet? If not, then consider the other item hot off the (WSJ) presses: “The U.S. Treasury Department disrupted a Dubai-based banking operation that Washington believes had become Tehran's primary conduit for evading international sanctions and processing its oil sales, according to people briefed on the operation. The effort was particularly sensitive because the targeted institution in the United Arab Emirates is partly owned by the local government of Dubai, a close U.S. ally. The chairman of the bank, called the Noor Islamic Bank, is the son of Dubai's ruler. In mid-December, Noor agreed to close off what the people briefed on the operation characterized as Iran's single-largest channel for repatriating foreign-currency oil receipts.”

As well, the US has fired off its first salvo against India’s de facto circumvention of the international community’s anti-Iranian sanctions (with its stated intent to continue to try to buy oil from Iran) by making a statement of “dismay” about India’s behavior…

Until tomorrow, tune in to “Mr. B Goes to Washington”

Jon Nadler is a Senior Metals Analyst at Kitco Metals

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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