Bullion prices traded a bit lower as little in the way of market-moving news came into the trading equation overnight. A slippage in crude oil after the realization that the Iraqi pipeline incident would likely not disrupt flows of black gold took gold lower as well. The US dollar staged a bit of a bounce but was still stuck at the midpoint of 71/72 on the index. As month and quarter end rolls around, participants are expected to clean up the order books, possibly taking prices towards the lower end of their recent range. The idea that $935 and/or $915 might be in the cards again does not appear far-fetched.
New York spot gold opened down $4.10 at $943.40 after not being able to sustain momentum above $950 and as players awaited additional US economic data later in the day. Consumer sentiment will likely be today's highlight, although not many expect it to be anything but gloomy. Silver lost 10 cents at $18.21 while platinum sank $10 to $2037.00 amid news that power co-generation might allow S. Africa's state-owned utility to avoid further power cuts to previously affected metals mines. Palladium was unchanged at $447.00 per ounce.
Background conditions appear a bit less supportive for further advances than they were earlier in the week. Hedge fund managers reduced their long positions in the week ended March 18, India remains on gold-buying hiatus awaiting lower prices and expressing a preference that they remain low for a while, and Turkish demand could dip by 20% amid high prices and volatility. Stock index futures were showing a positive tilt as an upgrade in Lehman Bros. by Citi and less-than-expected demand for funds from primary dealers from the Fed both boosted hopes that the liquidity crunch may be easing. This environment supported the US dollar in early going today.
At least some Fed voting members appear not to be fully on board with Mr. Bernanke's incessant rate-cutting campaign. As the Fed runs out of room for further accommodation, the focus among more of its constituents might turn towards inflation combat. It is good to know that there is an awareness of the dangers of not mopping up the recently injected liquidity. In the past, the Fed has successfully been able to vacuum up the wads of cash it bestowed upon market to jump-start the economy. It is imperative that they repeat the feat this time around as well. We learn from Bloomberg this morning that:
Federal Reserve Bank of Philadelphia President Charles Plosser, who voted against this month's interest-rate cut, said keeping inflation in check is the ``most effective'' way of ensuring economic growth and job creation.
``Price stability is not only a worthwhile objective in its own right,'' Plosser said in the text of a speech at a conference in Cape Town today. ``It is also the most effective way monetary policy can contribute to economic conditions that foster the Federal Reserve's other two objectives: maximum employment and moderate long-term interest rates.''
Plosser and Dallas Fed President Richard Fisher opposed the March 18 decision to cut the Fed's main lending rate by three-quarters of a percentage point to 2.25 percent.
Plosser said today that keeping prices steady has to be the primary obligation of the central bank in order to ensure the economy runs as efficiently as possible. Price stability helps an economy's ability ``to achieve its maximum potential growth rate,'' he said.
``Stable prices also make it easier for households and businesses to make long-term plans and long-term commitments, since they will know what the long-term value of their money will be,'' Plosser said. ``Price stability helps a market economy allocate resources efficiently and operate at its peak level of productivity.''
All of this jawboning is very nice but we have to see if words turn into actions. For the time being, markets appear to take these posturings with quite a few grains of salt. Let's give them another four to six months.
Look for lower-trending prices today and let's see what the economic numbers have to say.