Tuesday’s New York session finished with a 1.5% gain in gold prices following a mid-morning turnaround precipitated by a surge in oil prices and a decline in the dollar. An amalgam of market-moving news dented the greenback’s hitherto runaway gains and sparked some fresh buys in energy and precious metals. The news that engendered the favorable buying conditions ranges from the possibility that Lehman might have to toss another $4 billion in credit losses out the window, and that US housing starts were scraping bottom at a 17-year low. Also aiding the slide in the dollar were June wholesale prices which rose faster than consensus expectations. The Dow lost 132 points as shares of AIG, Lehman, Target, and Home Depot dropped amid credit woes and slowing consumer spending.
Spot gold was trading at $812.10 at last check, up $13.40 on the day and looking likely to chalk up its third gain for the month-to-date. Silver was more moderate in its advance, gaining only 10 cents to $13.13 but platinum and palladium continued to lose ground, with the former dropping $45 to $1332 and the latter falling $2 to $281 per ounce. Opinion remains divided as to the noble metals’ next steps, but CPM Group NY was quoted as optimistic on the prospects for price recovery in the group (see below). Optimism on the gold and oil front my be inferred from today’s price action, but the underlying shrinkage in open interest in both still presents signs of worry. Our take is that the worries (as seen in the recent exodus of fund money from the complex) reflect possible regulatory intervention into the commodity markets, should the roulette wheels show signs of wild and woolly betting action once again.
On the Fedspeak front, today was Mr. Fisher’s turn to reiterate his platform of dissent on interest rates and stagnation versus inflation. ” The Federal Reserve must be ready to take action if slowing economic growth fails to curb inflation stemming from higher food and energy prices” said he today.” Until we have a clear sense of what will prevail, monetary policy makers must remain poised to act if slowing growth fails to contain inflationary pressures,” he also said. In addition, Mr. Fisher remarked that he was not surprised by the dollar’s recent rise as too many had sold America short -evidently prematurely. Finally, he also expects the US economy to basically grind to a halt in the second half of this year.
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