Good Day,

Narrow ranges defined the overnight trading hours for gold, as the metal gyrated between $1010 and $1020 per ounce, closely tracking the dollar's own close orbit around the 76.10 mark on the trade-weighted index. Nevertheless, the greenback is still at, or near a one-year low point against the euro and sentiment shows little in the way of improving as yet. Today's FOMC meeting could make a difference, but not necessarily mark a turning point. The Fed is expected to underscore the idea that the US economic recovery has indeed begun, but it is also expected to leave rates alone for the time being.

Gold started the midweek session off on a steady note very near the $1015 level, showing a $0.90 loss at the opening bell. The dollar was equally flat, showing no movement on the index and a quote of 1.479 against the euro. Oil prices moved very little as well, stalled at $71.50 per barrel. Evidently, the larger bets are waiting the Fed out for now. Silver opened with a two-penny loss at $17.10 per ounce, while platinum fell $7 to $1326 and palladium slipped by $5 to $296 per troy ounce.

Sell-off fears continue to swirl in the various gold dealing rooms we contacted during the overnight hours - they are based on the gargantuan long positions in NY, and on the uninterrupted (by any significant corrective action) manner in which prices have gotten where they now are. This, despite poor fundamentals. For example, confirmation of just how lousy the 2009 Indian gold offtake is becoming, came from Reuters late yesterday. Reporter Frank Tang interviewed local trade-watchers/dealers and summed up the developing scenario in a manner that surprised even us:

India's gold imports in 2009 may fall to their lowest level since trade was liberalised 12 years ago as high prices have put off buyers in the world's biggest market for the metal, a top importer said on Tuesday. Total imports may fall to 500 to 550 tonnes, Shilpa Kumar, senior general manager of the global markets group at ICICI Bank, one of India's top three gold importers, told Reuters in an interview. 


We expect the year will be lower than last year as there was such a big fall in the first quarter, it can't be completely compensated in the calendar year, Kumar told Reuters. In 2008, India's imports were at 712.6 tonnes, according to World Gold Council (WGC). In the first half of the year, Indian demand was 55 percent lower than a year ago, but the gap will be narrowed to 23-30 percent for the full year as higher wages for government employees and an official scheme for rural employment has cushioned the impact of failed monsoons, she said.

The convergence of key levels (support as well as resistance) in various markets leading up to the FOMC and the G20 meetings could be interpreted as coincidence albeit many do not believe that to be the case. What will come to be regarded as a dovish or hawkish stance by the Fed, remains to be seen. As for the dollar, well, it's still an open case. We do know that the proceeds of the 403 tonne IMF gold sale will go into the US currency. But, is $13 billion enough to 'rehabilitate' the US currency at this juncture? The one certain thing is, that when US interest rates do begin their eventual upward adjustment process, even the first quarter-point tweak will move mountains in certain markets. The interest rate ice age has lasted long enough for that type of occurrence to be baked into the cake.

That same interest rate environment has given rise to the idea that perhaps the dollar is the next carry trade-funding currency, replacing the yen - a currency by which the term has largely been hitherto defined. The Japanese currency was a safe bet for speculators searching for a cheap source of funding for their ventures into various other markets. After all, given near-zero interest rates and a fast-deflating economy in Japan, how could they miss? Yet, miss they did- as in October of 1998 when a sharp downturn in the bond market made all of them run in sync. The yen rose by 18% in...four days, and by 25% in two months. Wipeout. These are the risks of the carry trade, these are the risks of one-way bets.

Despite all of this, and a record that shows speculative talk to not only be cheap, but often wrong, the talk continues. Talk of the imminent collapse of the dollar. Talk of the imminent collapse of America. Talk of a lunar launch for gold. Talk of a new world order. Talk that the world is recovering. Talk that the storm is over. Talk that inflation is coming. Talk that deflation is here. We would rather have talk without talking too much. Clear meanings in but a few simple words. Alas, it is not to be. We lack elephant talkers, these days. Marketwatch's Rex Nutting dissects the rivers of talking flooding our lives and finds that -as we have always said- at the end of the day, it is all noise in the void, devoid of action:

The world has its share of problems right now -- global financial meltdown, global warming, global unrest -- but mostly we're talking about them more than we're actually doing things to fix them. America, the most prosperous nation and the one with the largest military, can't escape problems of its own: Unaffordable health care, economic malaise, and troublesome international allies and foes. What are we doing about them? Mostly talking.

For instance, the Federal Open Market Committee is meeting Tuesday and Wednesday to talk about fixing the financial system and the economy. The meeting will be just talk, because the Fed has already done what it's going to do. Now they are waiting, and filling in the awkward silences with reassuring talk.

Sen. Max Baucus, D-Mont., the chairman of the Senate Finance Committee, announced Tuesday that his committee will wrap up the biggest-ever makeover in health-care in just a couple of days. Forget the fact that he's been talking to the members of his committee for months in a fruitless attempt to find common ground to act. Baucus is powerless to get his way, so all he can do is talk.

President Barack Obama is the biggest talker of all. He talked to the TV pundits all day Sunday, talked to David Letterman on Monday, and talked to the U.N. and the Chinese on Tuesday. On Wednesday, he'll talk to the Israelis and the Palestinians and the Japanese and the Russians. Then on Thursday and Friday, the president will travel to Pittsburgh for more talk with the Group of 20 leaders. At the end, the G20 leaders are expected to issue a statement full of lofty promises, and almost no action.

Is this the best we can do? Maybe. These issues are problems because they are beyond the ability of any one person, or committee, or nation to fix. They require coordinated action. Global climate change cannot be fixed without full cooperation of everyone. If one country goes it alone, the agreements to reduce greenhouse-gas emissions will fall apart in a race to the bottom. The global financial system cannot be restructured without the full cooperation of everyone. If one country imposes stronger requirements than the others, the bankers and shadow bankers will go elsewhere, and the whole world will be vulnerable to the next credit bubble and bust. Sometimes the talk seems cheap, because it is simply empty words. But agreement on these thorny issues can only be achieved by trusting each other to do what's best for all, even if it means each of us must sacrifice something.

Winning trust begins with talk, but can't be cemented without real action.

The FOMC attendees will be talking. Mr. Obama will be talking (some say, sternly) at the UN. The G20 will be talking this weekend. Mr. Ahmadinejad is talking friendship and peace. In the interim, the markets will also be talking, based on all that outside talk. But, for every talker, there ought to be a listener as well. In theory.

   

Jon Nadler
Senior Analyst