Wednesday, June 28, 2006

 

Markets Wait On 'Direction From The Fed'

Reuters looks at the market mood before the Fed decision. "The Canadian dollar barely budged versus the greenback for a third straight day on Wednesday, while bonds edged lower as a nervous market continued to sit on its hand ahead of Thursday's U.S. Federal Reserve interest rate announcement. The currency has traded sluggishly all week as market players ponder whether the Fed will raise rates by a quarter or half percentage point, and to what extent inflation fears will prompt it to issue a hawkish statement."

"'We haven't gone anywhere of any significance since last Friday. The market's basically trapped in this trading range, and I don't think it's going to be any more exciting until tomorrow, when we get some direction from the Fed,' said George Davis, chief technical strategist at RBC Capital Markets."

The Associated Press. "Slight moves in the U.S. dollar and euro lead to a lower close Wednesday for gold and silver. The benchmark August gold contract settled $3.40 lower at $581 a troy ounce. During the session, the contract moved to a $589.40 an ounce session high but was unable to hold that level as the dollar rose against the euro. August gold later dipped to a $579.10 an ounce low."

"July silver backed off of earlier gains to settle at $10.155 an ounce, down 4 cents on the day. July platinum settled $10.10 lower at $1,178.20 an ounce while September palladium settled down $1.40 at $312.80 an ounce."

From Bloomberg. "'I'm looking for gold to take a dip after the Fed raises rates,' said Mike Sander, a commodity broker. 'The Fed is most likely to increase the value of the dollar.'"

"Interest-rate futures indicate an 83 percent chance of another quarter-point increase in rate in early August. That was up from zero percent at the start of the month."

"'A lot depends on market perception,' said Jim Pogoda, an investor and a former precious-metals trader for Mitsubishi Ltd. 'If the markets feel the Fed has or will overdo rate rises, then the dollar should rise and pressure gold lower. If the markets feel the Fed is behind the curve and losing credibility to contain inflation, then gold should benefit.'"

Comments:
They cant raise rates forever... And raising rates is not fighting inflation. They are just tightening credit... If they want to fight inflation, they have to stop the presses...And they cant...
In the long run gold will prevail.
 
Economist,
I'd thought folks had lost interest with no one adding any comments. However, folks reading this blog realize the jig is up, and repeating the same reasons doesn't change it. The amount of thought/airtime spent on the notion of fighting inflation by raising rates is astounding. It will allow for less credit entering the system, but what about what has already been created?

The real irony is that as confidence gets worse in the system, more money will flow into items folks need, making the "inflation numbers" worse. It took high double digits last time to restore confidence. It looks like a hair over 5 is going to cause havoc now, but it doesn't look like it'll be restoring any confidence. What needs to be done can't be done. Now that is a dilemma.
 
I have heard it stated that one reason the Fed is raising rates is to continue and attract money to finance our deficit. We need to bring in so much money each day due to the larger amount we spend vs. what we bring in. Is this just spin or logical?

Thanks,
Mark
 
Mark,

It's not spin. The Fed has to keep raising rates to make US bonds attractive versus foreign bonds. Foreign central banks are raising rates as well, so the Fed is forced to keep raising rates to keep investors interested in US bonds.

Of course the rising rates will crush all the US consumers that are swimming in debt. When a recession becomes apparent and the Fed is forced to pause, things will get interesting.

kerk,

Haven't lost interest, just waiting patiently for the inevitable to happen. Hard to comment on all the short term noise that doesn't really matter when we're in gold long-term.

Anyone buying gold right now? I put my "fun" money in URPIX last week, with the intention of riding the market down a bit further. Once the mining stocks quite mirroring the general market, I'll get out of the position and buy some more GG or GDX. Comments?
 
It has been very interesting watching it all unfold through the years. All fiat ends up on the ash heep. The final chapter will be the same for our Dollar. I still think we will see some more downward correction in the metals before the summer is over. I'd be happy to add. Best of luck to you all as you we navigate through uncharted waters!
 
Kirk93, A very interesting comment.
Why is is that we dont talk about depreciating assets, but we will talk to a perfect stranger about things that are appreciating...I am
guilty as well...Must be human emotion.
 
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