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Tuesday Kitcommentary from Kitco.com
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Good Afternoon,
Gold prices recovered more than half of yesterday's net losses as the US dollar moved lower once again (last seen at 77.58 on the index). A mild recovery and stabilization of the global equity markets helped matters for bullion, as did the massing of some 60,000 Turkish troops on the Iraqi border. Iraq, the U.S., and Turkey itself are attempting to avert military action against PKK Kurdish rebels in what is seen as a last-ditch effort. Still, the fact that the parties are talking in lieu of shooting prompted a bit of a pullback in crude oil and likely tempered the gains in bullion as well.
Gold still needs a corrective adjustment, as it has not had one in a very long time. News that Indian imports into Ahmedabad slumped to a fourth of September 2006 levels this past month (obviously due to high prices) does not make for very encouraging reading as the wedding/festival season gears up. Investment demand had better fill the gap at this point. Indian buyers have previously shown that unless the calendar dictates a minimum of purchases that must be made in the event there is a marriage in the family, they have the resolve to stay put (as they did for about 10 months in 2005/2006) and simply await a better buying opportunity - especially if they do not deem prices to be sustainable at high levels.
New York spot prices closed $6.10 higher, at $759.00 bid per ounce, amid expectations that coming U.S. home sales data will further confirm the problems that previously prompted the Fed to slash rates in order to keep the economy afloat (or to bail out irresponsible gamblers, some say). Much still depends at this point on how stock markets will take the real estate niche news and whether or not the prospects for a recession or a second round of rate cuts become firmer in their wake. To be sure, a mild $10 + decline such as we've had on Monday has not wiped off much of the speculative froth that has been propelling bullion prices to current levels since early September. Silver gained 8 cents to $13.54 and platinum more than repaired yesterday's price damage, adding $14 to $1445.00 per ounce.
We have by now all seen and heard that the G-7 do not appear very fretful over the dropping dollar/rising euro scenario - at least overtly. We have also read that China has basically told the IMF to go take a hike rather than be told to hike the Yuan's value. Yet Mr. Paulson of the Fed echoed the call for a yuan revaluation today. China believes (and probably rightly so) that the IMF ought to worry about the global economy and its near-term prospects more than about the value of the Chinese currency. What about the Fed? What is on its collective mind of late? Well, more of the same...with some minor, but notable exceptions. In a thinly disguised message delivered by the Fed's Mr. Poole, we learn that further rate adjustment will almost...certainly...take place...IF the economy warrants them. For the moment, the Fed feels it has done enough. Really.
"I think that, given the information set that we have, we are approximately in the right place," Poole, a voting member of the Fed's interest rate setting committee this year, told Reuters in an interview. The next [Fed] meeting is on Oct. 30-31.
But Poole said that because of the importance of the predictability of policy actions, the Fed had to be pretty sure that any decision to lower borrowing costs was founded on solid expectations about the economic outlook. Otherwise, just wait.
"One of the considerations is that if we change the rate, are we likely to be perfectly happy to keep it there the next time? And if you say 'I'm not sure about that', then it would be better to wait rather than change it, because you can't have policy reversals. It is very confusing," Poole said.
On the other hand, he was also emphatic that the judgment of the market should not push the Fed one way or the other.
Poole [also] said monthly U.S. job data for August and September "does not provide evidence of a recession," while the weakness in housing shown in recent data was not really a surprise, given the big problems in that sector.
"Consumption is not going gangbusters, but it is OK.. That picture may change by the next meeting. I'm not saying that we are out of the woods. I'm saying that I don't see firm evidence in either direction," he said.
Pretty clear, eh? Not. Based on the above, the statistics will drive the expectations, which will, in turn, still weigh on policy decisions more than it is likely to be admitted publicly.
Watch for home sales data and keep a sharp eye on stock markets as their prospects in the near-term appear to have a marked and parallel-oriented influence on the yellow metal (contrary to conventional wisdom).
Best regards,
Jon Nadler
Senior Investment Products Analyst
Kitco Bullion Dealers
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Jon’s gold market commentaries are frequently quoted by the U.S. Canadian and global financial media (MarketWatch, ROBTV, CBC Radio, BBC UK Radio, CNBC, Forbes.com, TheStreet.com, The Wall Street Journal Online, Investor’s Business Daily, Forbes.com, AFX News.com, Bloomberg, Resource Investor, Investor Ideas, Korelin Economics Report, Smartstox, and Reuters).
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