Thursday, June 29, 2006

 

Gold Retakes $600 On Fed Decision

Bloomberg looks at the market reaction to the Fed decision. "The dollar fell by the most in two months against the yen after the Federal Reserve raised the overnight lending rate between banks a quarter-percentage point and suggested it may pause in its rate boosts. 'An August rate hike is in question now,' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. 'Reduced expectations for further rate increases brought down the dollar.'"

"The dollar dropped 1.2 percent to 115.07 yen at 4:01 p.m. in New York, and is down from a two-month high of 116.70 on June 27. The dollar weakened to $1.2648 per euro, from $1.2557 yesterday, the biggest drop since June 2. It has fallen from a two-month high of $1.2479 on June 23. The dollar also sank against the British pound and Canadian dollar."

"'We have the Federal Reserve talking down growth whereas in other economies they have said very different things,' said Peter Frank, senior currency strategist at ABN Amro Inc. in Chicago. 'That's very negative for the U.S. dollar.'"

"Gold futures climbed back above $600 an ounce in electronic trade Thursday, after the Federal Reserve raised interest rates by a quarter percentage point as expected and came across as less hawkish than anticipated, sending the dollar sharply lower."

"Gold for August delivery touched a high of $602.90 an ounce in late afternoon trade, breaking through $600 for the first time since June. Earlier, it had closed official trade up $7.90 at $588.90 on the New York Mercantile Exchange. Other metals prices were mixed. Silver closed up 17.8 cents at $10.333 an ounce, platinum closed up $27.50 at $1,205.7 an ounce and palladium ended up 60 cents at $313.40 an ounce."

"'The quarter-point interest rate raise by the Fed and its softer-tone policy statement have removed any fears that gold would be strangled by sharply higher interest rates and the U.S. dollar,' said Peter Grandich."

"With Tuesday's $599 price now breached, 'there's a decent chance that the rally can continue right up to major resistance at 609.40, which is the 100-day moving average,' said Dale F. Doelling, market technician. However, 'if gold is going to test that resistance level, it will take some serious fund buying along with continued dollar weakness, which just hasn't been evident of late.'"

"In another development that strengthened gold, crude oil futures hit a three-week high above $73 a barrel Thursday after Energy Department data indicated the largest weekly drop in crude supplies since last November. Crude for August delivery was last trading up $1.16, or 1.6%, at $73.35 a barrel."

Comments:
A very interesting day. Tomorrow will be pivotal for the technical picture on gold. If it breaks the 100 DMA at $609 or so, it could get fund attention and move higher quickly.
 
Well, with three hours left its sitting around $613, up 4.5%. Silver is currently up over 5.0%. I must say I'm a little surprised right now. I know the markets had basically priced in a 25 point increase, but given the volatility with no upward breaks of the last few weeks, I wouldn't think an interest raise (even an anticipated one) would signal a _rise_ in PM. Does this mean that people were just holding off to see if BB had the stones to raise it 50?
 
5, 4, 3, 2, 1, we might pause...
blast off...

wait till they start to lower rates
 
wmbz, thejdog... any insight on future price action??
 
My big question is re: money supply. With M3 now officially a 'mystery number' its tough to say exactly what's going on. I wonder if current upward moves in PM's mean some of the big players have done their own homework and see increases in M3 despite the Fed's quarter point increase.

Interestingly M3 in Europe continues to grow despite rate increases:

http://tinyurl.com/kr9mr
 
This is off the wall, but it felt like the markets priced in a 50 bps hike (and/or Fed speak for baked future hikes). Though only 14% (from some trader survey) believed 50 bps was in the oven.

When we got "only" 25 bps, the markets then over corrected a bit. Look at what happened to home builders and LEND after 2:15pm Thursday. They actually rallied up. You saw the rest of the stock market and PMs rally, and the dollar dove.

That's just the feeling I got.
 
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