Precious metals markets stabilized somewhat overnight and were confined to a fairly narrow range as anticipation was building ahead of today's Fed meeting. The men in black are facing the toughest set of conditions in the American economy since WWII ended. 78% of the trading crowd expects them to slash rates a full percentage point in order to try one more open-chest heart massage on the fast-slipping US economy.
Probably more than just the rate cut also needs to be offered up this time around. Not many a Fed meeting took place just a few hours after the failure of America's fifth largest investment bank. Fingers are being pointed at the Fed for many reasons these days. Some argue that it should stand-by and watch the debacle Sphinx-like, others blame it for being one week too late in acting and that the Bear might still be walking on Wall Street had it acted earlier.
The US dollar lost .07 to touch 71.30 on the index and crude oil gained $1.57 to rise to $107.25 in the minutes preceding the New York gold market opening. Spot gold started off with a $4.00 gain, quoted at $1007.00 per ounce as participants watched the greenback fall for a fifth day against the euro. The coming rate cut should still provide fuel for tests to higher levels. After that, it is back to news-watch.
Goldman Sachs today announced earnings that exceeded analyst expectations by 24% and revealed that there are still signs of life among firms in the battered niche. Lehman also reported earnings that surpassed expectations, but the best part of their PR blitz today was the announcement of the existence of a $34 billion liquidity pool from which it can draw, along with access to the Fed window.
Basically, the two firms told the street: Rumours of our demise have been greatly exaggerated. Doomsayers have been lining up the dominoes for days now in their special bulletins....The positive earnings news bolstered the US dollar for the moment, and the metals surrendered some of the pre-opening gains as a result. Silver rose 10 cents to $20.21 and the noble metals rose as well, with platinum gaining $74 to $2017 and palladium adding $25 to $491.00 per ounce. Volatility will continue to remain the dominant feature of white metals as the battle of the speculators seeking safe-haven versus those who see a demand slump continues to unfold in the trading pits.
This morning's inflation and housing start numbers reveal higher than expected PPI core inflation and falling construction activity amid a very weak niche - the worst in a decade. The Fed will not be impeded in its decision by these numbers today. In fact, the Fed has argued that a slowing economy will bring down inflationary pressures. Hmmm, wonder if they have seen some of the commodity values up-close lately.
While acknowledging that gold investment demand has been quite obvious in recent months, we must also reiterate our words of caution regarding the metal's current predicament. On the one hand, much of the investment demand has been provided by fickle hedge fund money which is treating gold as a 'sector rotation' On the other hand, the market's core demand component, Indian fabrication, is simply vanishing. The Business Times of India reports that:
[Indian] Gold imports have slumped over 80 per cent year on year as record prices have scared buyers in India and left them to helplessly watch the blistering rally that shows no signs of abating.
The latest World Gold Council (WGC) report showed that gold imports by India declined 72 per cent to around 24 tonnes in January this year following a 67 per cent decline in the quarter ending December 2007.
Analysts said February showed a further fall by around 80 per cent as rising prices stagnated domestic demand. India imported just 10.2 tonnes of gold in February, said an analyst.
With prices showing no signs of cooling, March is not expected to be any better as physical buyers are not comfortable buying the yellow metal at such high prices.
When the current attention exhibited by investment funds to gold abates for one reason or another, we will be left with a much-changed fundamental picture, one that will require adjustments on one side or another. We will let you ponder what the odds are that the critical fabrication demand side will simply shrug shoulders and become habituated to four-digit values. And now, we hear trumpets of $2.000 gold being in the pipeline?
Watch that noon hour. Fifteen minutes thereafter, the Fed speaks. Markets listen.