Bullion prices traded lower on the final session of the week as a slippage in crude oil (after the realization that the Iraqi pipeline incident would likely not disrupt flows of black gold) and slipping consumer confidence took gold, base metals, and all kinds of other commodities lower once again. Commodities also declined amid a resurgence of risk aversion and quarter-end book squaring. The US dollar staged a bit of a bounce but was still stuck at the midpoint of 71/72 on the index.
New York spot gold was down $14.90 at $932.60 after not being able to sustain momentum above $950 and as players took the US economic figures on consumer sentiment and spending as gloomy and pointing in the same direction as previously: recession. Silver lost 50 cents at $17.81 while platinum sank $22 to $2025.00 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 appeared 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. However, the Dow eventually lost more than 85 points on the day amid the weak statistical data.
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.
Gold managed a slight gain on the week after last week's freefall, however it would have been more promising to have the metal finish the week in the upper $950's or higher. At this juncture, the picture remains mixed and future sessions are still subject to corrective dips to near $900 as the entire commodity complex has come under sharp scrutiny by hitherto freewheeling speculative funds. Further validation will be sought for the so-called supercycle now that it has shown vulnerability. If the Fed does make good on its words, it will be difficult going for commodity speculators.
Happy Trading. Pleasant weekend.