Money and Metals

MarketWatch reports on the gold market. "Gold futures closed with a gain of almost $9 an ounce Thursday, to recoup part of a four-session loss of 7% as oil spiked higher on news that major oil producers will cut output. 'Bargain hunters emerged, buying up the battered gold and silver markets,' said Peter Spina, chief investment strategist at GoldSeek.com. 'The fact remains: oil is a short-term driving force as speculators trade the metal based off this lead indicator, for the time being,' he said."

"Crude futures for November delivery closed above the $60-a-barrel level Thursday, gaining after news that the Organization of the Petroleum Exporting Countries has informally agreed to cut production by one million barrels a day."

"Gold for December delivery closed up $8.80 at $575.50 an ounce on the New York Mercantile Exchange after a high of $578.80. The contract suffered a loss of $44.20 over the past four sessions, with almost $15 of that loss seen on Wednesday alone as a volatile oil price and strong stock market sapped demand for gold."

"December silver futures finished up 27.5 cents at $11.07 an ounce, January platinum closed up $3.80 at $1,086.20 an ounce and December palladium rose $4.50 to close at $301.15 an ounce."

"Whether or not the move is 'the start of another constructive phase or a phony dead-cat bounce will only be decided somewhat later, and it will largely be dependent on what happens in the energy complex and the U.S. economy over the next two or three months,' said Jon Nadler, at bullion dealers Kitco.com."

"Technical damage remains a 'stark reality as we get closer to the end of the week, and gold will have much to prove in coming sessions,' he said. December gold fell to an intraday low of $563.50 on Wednesday, its weakest level since mid-March.
'Long-term buyers should welcome an opportunity to cost-average their holdings,' said Nadler, adding that he doesn't see evidence that the U.S. dollar's 'ills have suddenly been cured.'"

The Street.com. "News that the European Central Bank will likely keep its short-term interest rates relatively high will likely keep downward pressure on the dollar."

"The ECB increased its key short-term interest rates a quarter-point to 3.25% Thursday, and its president, Jean-Claude Trichet, warned about the dangers of a robust European economy stoking wage-led inflation. Trichet did nothing to dispel investor expectations of a further 25-basis-point rate increase in December."

"The announcement seems to have been largely anticipated by the market, and the dollar was mixed against the major currencies; the euro was recently trading at $1.2692, down from Wednesday's $1.2713. The greenback was weaker against the yen, buying 117.62 yen vs. 117.88 yen previously."

"Elsewhere in the bullion market, Barclays Capital is accusing the Bank of France of selling 100 tons of its gold holdings in addition to the roughly 393 tons already reported by the ECB Wednesday, according to a report by London's Telegraph. The sales were allegedly made via the futures market to disguise the effect, the story says."

"On the technical-analysis side, signals continue to leave traders feeling cautious about whether the bounce in prices might convert into a sustained rally."

"'The gold price is still under its 200-day [moving] average, which is a bearish indicator,' says Mike Sander, an analyst at futures broker Altavest."

From Bloomberg. "Federal Reserve Vice Chairman Donald Kohn warned investors not to underestimate the central bank's inflation concerns and challenged the wagers of some traders that interest rates may be cut."

"Kohn said in a speech late yesterday that he's more worried about persistent inflation than a slowdown in growth. 'Don't sell the Fed's concern about inflation short,' he said in response to questions after the address. 'Further upward movements in inflation would be very adverse to the economy and would, I think, require policy actions.'"

"The remarks by Kohn, who has worked at the Fed since 1970 and served as former chairman Alan Greenspan's chief strategist, are at odds with speculation that a housing slump will prompt a rate cut by early next year. Yields on 10-year Treasury notes approached a seven-month low yesterday and yields on interest- rate futures implied a reduction in rates by the end of March."

"'You think it will take some decline in interest rates to make this forecast come true,' he added. 'I'm saying I don't know where interest rates need to go.'"

From Reuters. "U.S. interest rates may not be high enough to quell a recent bout of inflation, Philadelphia Federal Reserve President Charles Plosser said on Thursday. In a speech peppered with stern anti-inflation warnings, Plosser said the U.S. central bank's very credibility was at stake when it came to keeping prices under control."

"'There remains some risk that policy is not yet firm enough to ensure a return to price stability over a reasonable time horizon,' Plosser told the CFA Society of Philadelphia."

"'We need to remain vigilant and recognize that maintaining the current stance of policy, or even firming further, may be in the best interests of the economy's long-run performance,' he said."

"The bond market reacted negatively to Plosser's comments, since many investors had been betting an economic slowdown could force the Fed to start cutting rates by early next year."