Last night, after the Fed's cut we asked just how long its effect might last on gold and the dollar. Evidently, it lasted about as long as cheap lipstick on a May prom date. After an encouraging attempt to regain composure and march over the $880 level, the metal succumbed to renewed selling pressure, as the one that regained momentum turned out to be the US dollar. Despite the lack of a clear pause signal in yesterday's Fed announcement, the markets are treating May/June as the pivot point beyond which they can no longer reliably depend on ever cheaper dollars to fuel speculative binges in commodities.
Thus, gold, turned south once more just after a nice 2% gain early overnight, and headed back towards a four-month low near $860 this morning. Separately, the Bank of England signaled that -in their opinion- the worst of the credit crisis may be over and that prices in some credit markets are overstating the eventual losses to be realized. The BoE feels that the size of the problem might well turn out to be under $200 billion. About $100 billion has been written off thus far, but recall that the market estimates ranged from $400 billion to as much as the IMF's $945 billion projection just recently.
New York spot trading opened at $862.40 on the bid side, down $14.20 per ounce and today's action might be dependent less on the initial jobless claims and ISM manufacturing numbers than on the dollar's renewed attempts at overcoming the 73 mark on the index and breaking 1.55 against the euro. At any rate the next two sessions could well be quite volatile as participants realign trading positions not just as the weekend approaches but as they sense a shift in sentiment that is not limited just to their own trading pits.
The potential for buyers to be able to pick some gold up at lower levels now becomes more likely once again, as the alternative rise turned out not to have real momentum behind it. Thus, $845 and (possibly) $800 loom (or beckon, if you are a would-be buyer) on the near-term horizon. Silver lost 22 cents to $16.62 and the platinum group metals declined along with the rest of the complex. Platinum fell $41 to $1892 and palladium dropped $6 to $417 per ounce, respectively.
And, this just in, first-time filings for state unemployment benefits surged 35,000 to 380,000 in the week ending April 26, the Labor Department reported minutes ago. Market reaction? Gold broke $860 briefly, and the dollar broke 73 on the index. Counterintuitive? You bet. But not as much as it would appear to be the case, given recent trading environments and sentiment. Look for a visit to the previous all-time high watermark of $845.00 per ounce.