Thursday, February 16, 2006

 

Gold Futures Make Successful Retest Of Lows

MarketWatch looks at the futures markets. "Gold futures bounced off a six-week low Thursday, with traders determined to recoup much of the previous session's loss of more than $6 an ounce, as the metals market weighed the odds of further hikes in U.S. interest rates."

"In testimony to Congress, Federal Reserve chief Ben Bernanke 'made it clear that he intended to fight any increase in inflation, which was disappointing to those who were bullish on gold,' said Steven Jon Kaplan. 'As a rule, precious metals perform poorly when the Fed is raising interest rates to combat inflation,' he explained."

"Gold for April delivery fell to an intraday low of $538.80 an ounce on the New York Mercantile Exchange, but the contract then recovered to trade up $4.40 at the $547.10 mark. 'News that the German government has deserted plans to invest proceeds from gold sales into a special fund assigned for research and education has given a boost to a weak gold market,' said Peter Spina."

"At the same time, the U.S. dollar retraced some earlier gains made after a batch of strong economic reports showing that the nation's housing market remains robust and that inflation may be heating up, fueling some buying in gold. April gold made a 'successful retest' of the overnight low of $537.80 an ounce set on Tuesday, and that support has been 'holding well,' said Dale Doelling, chief market technician at Trends In Commodities. But for now, 'it's too early to tell whether there's another ambush lurking on the trading floor,' he warned, adding: 'I'll need additional evidence before I'm convinced that its time to sound the 'all clear.'"

"Elsewhere in the metals market, March silver tacked on 10.5 cents to $9.32 an ounce.
April platinum fell $1 to $1,005.50 an ounce after trading as low as $990.20, its lowest since early January. Sister metal palladium saw its March contract trade at $278 an ounce, up $1."

Comments:
"In testimony to Congress, Federal Reserve chief Ben Bernanke 'made it clear that he intended to fight any increase in inflation, which was disappointing to those who were bullish on gold."

Are there really any gold bulls who don't expect him to try to fight inflation?
 
I would hardly say that Bernanke came off (or has ever come off) as a hardcore "inflation fighter". Sure, he's raising rates another click. 99.9% of analysts predicted as much. But from everything else Bernanke has ever said or written, he seems to be more of a moderate inflation fighter rather than a true hawk.

Let's not forget he's also nicknamed "Helicopter Ben" for a reason. As a student of the Great Depression I'd say he stands just as ready to apply economic stimulus as he does restraint.

What we do know is that he believes in a program of "fixed inflation rates". And given that inflation is determined by notoriously faulty metrics like the CPI, a "fixed" rate of inflation can be tough to hit. I'd give Bernanke an excellent chance of utterly losing the battle against inflation.

For the market to be responding (in either direction) to the cryptic and limited comments he made yesterday is reading a lot of things into his comments that just aren't there.
 
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