Good morning ...
Gold was slightly lower from Hong Kong to the New York open on Wednesday, then declined sharply to near the noon hour, bottoming at $884, traded sideways through the Comex, but then got a rocket launch during the first hour of Globex trading, shot skyward by more than $50 in two hours, and finished the wild day's ride at $941.50/oz., up $26.60. Overnight, gold has backed off.
Platinum declined through the Comex, to as low as $1030, then it too got a boost, climbing back to end at $1058/oz., up $13. Overnight, platinum is little changed.
Silver followed the same path, dipping to $11.90, then soared by nearly a buck to close at $12.89/oz., up 20 cents. Overnight, silver has edged lower.
After several days of listless trading, with a slight bias to the downside, the precious metals rode the rollercoaster in some very manic action yesterday.
Although rising equities and oil chipped in to help, it was the Federal Reserve that made the real difference. Gold and the other precious metals were resigned to another down day until the Fed announced it would purchase long-term Treasuries. That sent the dollar reeling and gold into orbit.
The Hightower Report chronicled the tale of two days: Trading in gold turned extremely volatile on Wednesday with the market initially being pushed sharply lower on what the press called rising investor risk tolerance and that in turn seemingly prompted long liquidation and some chart based selling. Recent economic reports including today's CPI and yesterday's housing data also seemed to be fomenting some economic optimism that in turn diminished gold's safe haven appeal. In fact, reports of rising scrap gold supplies and slack jewelry demand in India may have added to the early selling bias. However, the gold market was obviously inspired by the aggressive action from the FOMC meeting, which in turn seemed to shift the gold market from a flight to quality focused market to an inflation focused market. While the inflation angle might not stick a sharp slide in the Dollar in the wake of the FOMC meeting could have been a totally fresh bullish force for the gold trade on Wednesday afternoon.
Nobody anticipated the Fed would monetize debt, said Leonard Kaplan, of Prospector Asset Management in Evanston, Illinois. This is highly inflationary.
To say the least. Whether this is the stimulus gold has needed to push it back over $1,000 remains to be seen, but yesterday may well have marked a major turning point, as the inflation genie is out of the bottle now.
As Jim Sinclair, writing on jsmineset.com, exclaimed: Mugabe is the Chairman of the Federal Reserve. What a horrible mistake this is! Now you can count on Confetti Money.
Nothing could be more gold bullish.
Currencies and Economic News
In the currency market, the dollar plummeted against the euro after the Fed spoke. Late Wednesday, the euro was trading at $1.3485 vs. $1.3013 on Tuesday.
The buck was obviously hammered by traders who didn't care for the Fed's monetization move.
It was taken to the woodshed and beaten like a dog. And after a short rest, beaten like a dog again, wrote David Watt, senior currency strategist at RBC Capital Markets. Market sentiment on the Fed's maneuver was crystal clear.
Marketwatch.com wrote of the decision that, Quantitative monetary easing policy carries out monetary easing by using money supply rather than interest rates as its main tool. The benefit of this policy is that more funds can be supplied, even after official rates fall to zero, thereby expanding monetary easing further. The Bank of England, the Bank of Japan and the Swiss National Bank have all adopted it to varying degrees, putting pressure on their respective currencies.
Marc Chandler, of Brown Brothers Harriman, took a look at both sides of the coin, writing that, The key consideration might be that quantitative ease is currency-negative -- as it was for sterling, yen and Swiss franc.
However, Chandler added, an alternative explanation is that with today's move the Fed has finally gotten ahead of the curve and this will boost confidence of a recovery later this year. Maybe. But in its statement, the Fed removed language saying they expected the economy to recover later this year.
Almost lost in the shuffle, the Labor Department reported that the consumer price index gained 0.4% in February, the second monthly increase in a row and the largest since last July. It exceeded economists' projections by 0.1%.
In the energy market on Wednesday, the price of oil inched higher, with crude for April delivery closing at $49.64/barrel, up 46 cents. April reformulated gasoline dropped 5.81 cents, to $1.3657/gallon.
The Fed announcement turned the crude market around. Earlier in the day, oil had been dropping on an unexpectedly high stockpile report.
In its weekly inventory survey, the Energy Information Administration said that crude stocks rose by 1.94 million barrels, about one-third higher than expectations. Gasoline supplies rose 3.19 million barrels vs. projection of a 1.5 million barrel decline, and distillates added 112,000 barrels, well below the 1 million barrels expected. Refineries were operating at 82.1% of capacity, as opposed to 82.7% a week earlier.
Prices are holding up pretty well given how bearish this report is, said John Kilduff, of MF Global. The gasoline inventory number was surprising, especially since refineries are operating at low rates. It short-circuits the argument that demand is recovering.
Total daily fuel demand averaged over the past four weeks was 19.1 million barrels, down 3.2% from a year earlier, the EIA said.
The base metals were mixed on Wednesday. Copper declined from the pre-dawn hours to mid-morning, but then rallied sharply through the rest of the day, finishing at its intraday high of $1.7383/lb., up 3 3/4 cents. Nickel also turned around after mid-morning, but failed to regain positive territory, closing at $4.4754/lb., down nearly 7 1/2 cents. Zinc followed a similar path, ending at $0.5451/lb., down a half-cent. Aluminum added almost a penny and a quarter, to $0.6195/lb., while lead slumped, dropping nearly a half-cent, to $0.5962/lb.
Copper recouped its early losses and pushed well into the green after the Fed's announcement generated some positive feelings.
I think the fact that they are starting to buy long treasuries to push down long-term interest rates caused the (copper) market to react, said Edward Meir, of MF Global.
The Fed's Treasury purchases will help copper on the demand side by helping to make money cheaper, Meir added.
Action on the stockpile front continued to be slow. Inventories monitored by the LME rose by 625 metric tons yesterday, to 495,150 tons, anemic compared to recent changes that have routinely been in the thousands of tons.
Traders also had their eyes on China where, as Bloomberg reported, the stock market rose to the highest in almost four weeks, led by Jiangxi Copper and other metal producers, on the expectation that higher commodity prices will help boost profits.
'Copper prices have stabilized,' said Zhao Zifeng, a fund manager at China International Fund Management Co. in Shanghai, which manages the equivalent of $10.2 billion. 'Investors are buying metal stocks as the state purchase has bolstered investors' confidence that prices would be on an upward track.'
Copper purchases by China to boost stockpiles may flip the global market from surplus into deficit this year, boosting prices already underpinned by stimulus spending, according to China International Capital Corp., the nation's biggest investment bank.
That's what's happening ... see you tomorrow!
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