Gold prices spent the day on the plus side in an otherwise featureless trading session that was largely confined to the $915-$925 range. Gold's overnight visit to (and holding of) the $905 area has rekindled some hopes that most of the selling seen last week may have run its course for the time being. US dollar (and commodities) speculators remain apprehensive about the signs that point to an easing of the credit crunch and to other clues that reveal some improvement in the hitherto dire conditions in various niches of the US economy. Good news on such fronts are not quite what they wish to hear. Take housing, for example. It turns out (not surprisingly) that a roof of ones' own over one's head remains a desirable asset, and even more so at a (more) decent price (kind of like gold, in India).
Home sales took an unexpected jump for the first time in seven months, rising nearly 3% in February. Many overlooked the sharply lower prices that may have contributed to the amelioration in the sales figures - the sheer numbers were a sufficiently positive development at a time when expectations were geared in the opposite direction. Also helping the stock market's mood was the revised JP Morgan bid for Bear, fully five times the initial $2 per share. Perhaps there is more value at the firm than just in its rolodexes, after all. The Dow rallied 240 points on the day's positive news.
New York spot gold was up most of the morning and was showing a $10.00 gain at last check, quoted at $920.00 per ounce, as participants treaded lightly and awaited mid-week economic statistics. The trading range appears to be confined to $905-$925 but prices swings could be augmented by the thinner trade expected after the absence of trading on European markets. Silver gained 40 cents to $17.12 while platinum showed a bit of new-found strength rising $27 to $1878.00 per ounce. Analysts had feared that the platinum price may fall to the mid-1700' as a perceived US economic slowdown is expected to cut into automotive-related demand for it. Palladium traded at $433.00 per ounce, down $2. The US dollar was unchanged at just under 73 on the index and crude oil rose a fraction to just under $102 per barrel.
As key markets were closed for the holiday hiatus on Friday and [in Europe] on Monday, participants whose nerves and pocketbooks had been traumatized by the incessant turmoil unfolding in currencies, stocks, and commodities of late, had a chance to reflect on the conditions developing in the background. The significant after-effects of Ben Bernanke's signaling that the frontal assault on interest rates may have reached its final stages with Tuesday's accommodation were at the top of the list that currently preoccupies market players.
While Mr. B's nickname still refers to a rotor craft, some have recently added the Bailout moniker to the list as he threw the life preserver to Bear Stearns. These two actions may have finally gained him some respect and confidence among the people who make a living trying to second-guess him. We now bring you excerpts from two noteworthy pieces in today's financial media. The idea is to consider the background conditions that have brought us to this juncture and to ponder what is possibly coming next. A long weekend pause such as we have had, was an opportune time to take stock and think about the issues.
Bloomberg's Pham-Duy Nguyen (who usually polls gold analysts for their weekly opinion) wrote in an incisive article over the long weekend that:
The biggest commodity collapse in at least five decades may signal Federal Reserve Chairman Ben S. Bernanke has revived confidence in U.S. financial firms. Investors who had poured money into gold, oil and corn, seeking a hedge against inflation and a weak dollar, sold commodities to raise cash or buy stocks. The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, the most since at least 1956, after touching a record on Feb. 29.
``Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''
Concern that the central bank would let inflation get out of control eased after the Fed cut its key interest rate by 0.75 percentage point on March 18, less than the reduction of at least 1 point that investors had expected.
``Clearly they've gotten some stability,'' said Keith Hembre, a former Fed researcher and chief economist at FAF Advisors Inc. in Minneapolis, which oversees more than $107 billion in assets. ``You have to stand back and say, for the time being, it looks to be a pretty successful combination of moves that have worked.''
Gold had its biggest weekly loss since August 1990 after reaching a record $1,033.90 an ounce on March 17. Oil plunged almost $10 over three days, after rallying to $111.80 a barrel, the highest ever. Corn dropped more than 9 percent for the week, the most since July.
Oil, soybeans, platinum and wheat had all jumped to records this year. The weighted UBS Bloomberg Constant Maturity Commodity Index of 26 futures has gained more than 20 percent every year since 2001. The index is up 10 percent this year. Gold had rallied as much as 43 percent since Sept. 18, when the policy makers began lowering the federal-funds rate for the first time in four years.
Marketwatch's Mark Hulbert also chimed in on the issue, and reported that:
The significant and growing threat posed by inflation, and the even bigger worry that the Fed could soon find itself so behind the curve in responding to financial crises that it becomes 180 degrees out of phase with what's really going on in the economy.
Dan Seiver, [editor of the PAD Systems Report and a professor of economics] is confident that Fed chairman Ben Bernanke is well aware of the risks involved with the Fed falling too behind the curve. That is why, Seiver believes, Bernanke is likely, once he starts to raise rates to counter the inflationary threat, he will raise rates just as aggressively as he has recently cut them. When it becomes clear that the economy is going to recover from its current period of weakness; the Fed will take back [the rate cuts], and will take them back fast.
Stay tuned for the next chapters in the markets' saga. Range-trading may be a feature until the markets find new bearings and players finish analyzing the underlying conditions in these turbulent waters. Tomorrow will bring all players back to the table and investors will be on alert for fresh trend indicators.