Overnight action in gold picked up on yesterday's gains in New York, and the market headed to near $881 before turning back as it bumped into resistance. While festival-related buying was seen in India ahead of tomorrow's auspicious day, the level of interest appears not to be as robust as one may have expected after a 15% decline in values since mid-March. Making things somewhat worse for would-be buyers were reports that over 125 jewelry shops were being charged with weighing irregularities and overly high premia on various products they sold. Scrap supplies continue to make their way into the market as sellers are still attracted by historically high price levels.
New York spot trading opened fairly flat, quoted between $872 and $875 per ounce as the trade kept a watch on oil prices (black gold started to move higher once again this morning setting new records above $121.13). Once oil got going and the US dollar broke under 73 on the index, (mainly on the wider than expected loss of $2.19 billion at Fannie Mae) a little more buoyancy was seen in bullion, (the metal was up $7 at last check) and a successful break of resistance at $880 might push prices closer to $890, provided enough buyers emerge to bolster the short-term trend. That part remains less than certain however, as CFTC records show that speculative long positions on the exchange registered their lowest level since last September as of last week, after another 4%+ drop in bets on higher gold prices and amid a 9.6% decline in balances held by the gold ETF. Silver added 26 cents, trading at $16.95 and the noble metals rose nicely, with platinum gaining $24 at $1953 and palladium rising $6 to $428 per ounce.
Commodity prices surges have definitely made it onto the radar of central banks and present a fresh challenge to policymakers who are still trying to avert a global economic slump of the type that the IMF recently envisioned. Much depends on the one commodity that everyone has to have in order to (literally) keep the engines of growth going. While Goldman Sachs pundits see crude reaching $150 to $200 within two years, hedge fund manager Barton Biggs believes that if oil can just stabilize near $100 instead of heading towards those levels, the effect would be that the U.S. economy will grow in the second half of 2008, the Standard & Poor's 500 Index may climb to a record this summer and commodity prices will retreat as much as 30 percent.
Companies aren't expressing ``gloom and doom,'' and the economy is ``not as bad as you would believe from listening to the press and some of the Wall Street commentators,'' Biggs said during an interview with Bloomberg Television from New York. The 75-year-old said the S&P 500 may top its October record of 1,565.15 this year. Reaching the all-time high would represent a gain of 11 percent from today's close.
The Federal Reserve has cut its benchmark lending rate seven times since September, lowering the target for overnight loans between banks to 2 percent from 5.25 percent. Once the economy starts benefiting from those reductions later this year, gross domestic product may expand 1 percent to 3 percentage points more than the rate of inflation, Biggs said. Biggs, a former Morgan Stanley strategist who now runs the $1.5 billion hedge fund Traxis Partners LLC, predicted on March 14 that the Dow Jones Industrial Average would rally 1,000 points, or 8.4 percent. The 30-company measure has since risen 1,018.45 points. The broader S&P 500 climbed 4.8 percent in April, its biggest monthly gain since December 2003. - quote courtesy of Bloomberg.
Oil prices may be one issue that much depends on (like, say, this summer's 'driving season' which may not materialize) but housing is another equally important one. USA Today reports that Federal Reserve Chairman Ben Bernanke warned late Monday that the federal government should do more to stave off home foreclosures that threaten credit markets and the economy, even as a Fed survey showed the percentage of banks tightening credit for consumers and businesses reached historic highs.
In a speech to the Columbia School of Business in New York City on Monday night, Bernanke said: Finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy, But he noted the difficulty of finding the right balance, particularly the need to avoid programs that give borrowers who can make their payments an incentive to default.
Doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest, Bernanke said.
On a final note, a piece of encouraging news from Abu Dhabi, where gold sales volumes were up 10% in April as gold prices came off their March highs and Indian expatriates warmed up to the idea of buying bullion once again. The trend is still fragile and could reverse if a fresh spike in values occurs in coming weeks - a period of seasonally lower demand anyway. Last summer's doldrums were in large part offset by the emergence of the subprime hydra and related safe-haven stocking up among investors.
Oil remains at the front line of today's push in commodities thus it bears close watching once again. Keeping the $887/$890 target in mind, watch for gold's closing levels and the possible emergence of profit-taking at that juncture.