Dramatic selling in gold as good news for the economy became bad news as the FOMC dashed hopes of more easing.

The gold price slid $22.46, or 1.4%, to $1,624.34 per ounce on Wednesday as yesterday’s sell-off in precious metals continued this morning.  The price of gold declined amid strength in the U.S. dollar after the March ADP Employment Report came in at 209,000 – ahead of the 206,000 consensus estimate among economists.

Commenting on the yellow metal’s weakness, RBC Wealth Management’s George Gero wrote in a note to clients that “Dramatic selling in gold as good news for the economy became bad news (Tuesday) as the FOMC dashed hopes of more easing.” Analysts at UBS offered their own take on the gold sell-off, contending that “Gold really does need the physical market to step in right now…So far the response has been limited.  The jewelers’ strike in India persists, overnight demand from that region was poor and the Chinese market is closed, but returning tomorrow.”

The gold price, along with most other U.S. dollar-denominated asset classes, initially suffered steep losses after the Fed minutes were published.  However, the markets – albeit the price of gold less so than cyclically-sensitive commodities and stocks – pared their losses as the close of trading approached.

The modest rebound in the markets coincided with the release of a note by Jan Hatzius, Goldman Sachs’ chief U.S. economist.  Hatzius, who recently predicted that the Ben Bernanke-led central bank will launch QE3 by June of this year, reiterated his monetary policy forecast in spite of Tuesday’s Fed minutes.
Commenting on the latest developments, Hatzius acknowledged that “Minutes from the March 13 FOMC meeting showed that the committee did not discuss monetary easing options in detail, in contrast to our expectations…March FOMC minutes make easing at April meeting unlikely without substantial deterioration in the outlook.”

However, the Goldman Sachs economist went on to say that “Officials’ views on the (economic) outlook were only a little more upbeat than previously.”  In summary, Hatzius asserted that “an announcement of additional asset purchases remains our baseline, with June the most likely timing at this point.”

Comments

Post a Comment

Popular posts from this blog

Gold edges up on weaker dollar, dovish U.S. Fed policy bets

Image
 Gold edged higher on Monday, helped by a weaker dollar and expectations that the U.S. Federal Reserve will reiterate its dovish monetary policy stance this week. Spot gold was up by 0.1% at $1,943.58 per ounce. U.S. gold futures rose 0.1% to $1,950.10 per ounce. “Gold is firm on the basis that the Fed could adopt a further dovish message with respect to average inflation targeting,” said Michael Hewson, chief market analyst at CMC Markets UK. “If you want to have a policy of average inflation targeting, you’re going to have to go into detail as to how you are going to arrive at that particular outcome.” The dollar retreated on Mond ay, bolstering gold’s appeal for investors holding other currencies, ahead of the Fed’s policy decision due on Wednesday. “If inflation forecasts remain at 2% or below, this could offer gold a tailwind as the zero-yielding metal thrives in a low-interest rate environment,” said FXTM analyst Lukman Otunuga. Market participants are also waiting
Read more

For the gold price, two outcomes are possible.

Image
For the gold price, two outcomes are possible. First is a return to or near the April low ($1,277.40). Second is a drop to a lower low, $1,240 - $1,260. Yet a third possible outcome is that the June and December lows were not a double bottom and one further drop may come. I account that the least likely, and look for a low here by the end of the week, but I'm no more'n a nacheral born durnd fool from Tennessee, so what do I know?   You'd think that an institution charged with promoting the gold industry would produce reports that at least cast the best light on gold's prospects. You'd think wrong, if you're thinking about the World Gold Council. They've been negative on gold for, oh, the last 14 years or so. Today they issued a report that contained a nugget about Chinese business using physical gold as collateral for bank credit ($40 bn worth) but they managed to tease a gloomy forecast even out of this inventive monetary use. That and bad
Read more

The price of gold advanced as high as $1,603.40 per ounc

Image
The gold price broke out to a new all-time high above $1,600 per ounce Monday morning, rising for the eleventh consecutive trading session. The price of gold advanced as high as $1,603.40 per ounce before backing off to trade just the $1,600 level. The yellow metal gained on the back of a surge in borrowing costs for Italy, the latest European nation to see its bond market come under heavy selling pressure. The lack of a deal to raise the $14.3 trillion debt ceiling also helped boost gold prices. The eleven-day rise in the gold price is the longest winning streak since January of 1980. The gold price delivered another noteworthy performance last week, climbing 3.2% on its way to a series of fresh record highs. With Monday’s advance, the gold price extended its monthly and year-to-date gains to 6.6% and 12.5%, respectively. Last week’s two-day Congressional testimony by Chairman Ben Bernanke on the economy and monetary policy revealed that the Fed remains open to the
Read more