Money and Metals

A Fed report shook up the currency markets this afternoon. "The Canadian dollar slid to a 2-1/2 month low versus the greenback on Wednesday, as commodity prices continued to decline, while a key report from the U.S. Federal Reserve suggested officials are still concerned about U.S. inflation."

"The somewhat hawkish Fed minutes report, which boosted the U.S. dollar broadly, although those gains were pared somewhat after news reports that a small aircraft had crashed into a building in New York. 'I think that the market was leaning a little bit on a hawkish stance from the Fed, and they got it,' said Steven Butler, director of foreign exchange at Scotia Capital."

"'We're slowly grinding to the next (technical) level, which is probably C$1.1425, which still seems like it's a little bit away, but it feels definitely like the market's... now going to continue to look to buy U.S. dollars on dips,' Butler said."

"While the market is debating the U.S. rate outlook, Bank of Canada rates have not budged since May and are not expected to move next week, when the Bank of Canada announces its next rate decision. The central bank's overnight rate is 4.25 percent, while the comparable fed funds rate is 5.25 percent."

"The economic fashions for the United States are changing. Out of style: the need for aggressive Federal Reserve rate cuts starting early in the new year. Back in style: a possible 'soft landing' for the U.S. economy."

"That change is tripping up the finance world's fashion followers who had bet recently on a sharp economic slowdown by positioning for lower interest rates and a weaker U.S. dollar. Lower market interest rates that have helped stabilize the housing market, as suggested this week by St. Louis Fed President William Poole, calls for drastic rate cuts to head off a recession are fading."

"Subsequent Fed speakers sang a similar song, culminating in Wednesday's hawkish minutes from the Sept. 20 Federal Open Market Committee meeting."

"The soft-landing scenario has hit interest rate futures, where dealers recently bet heavily on a slowing economy. The fed funds yield implied by Eurodollar futures has risen by almost 25 basis points since Oct. 4, erasing the equivalent of a quarter-point Fed rate cut."

"After the FOMC minutes, futures briefly implied, for the first time in three weeks, a small chance the Fed could raise rates in December from the current 5.25 percent. The U.S. dollar, meanwhile, is at multi-month highs against major currencies on assessments that the economy is in better shape than many had thought."

"Gold futures climbed Wednesday, but closed under $580 an ounce for a second session as traders weighed the precious metal's value as a defensive investment against a backdrop of weaker oil prices and threats of more nuclear tests from North Korea."

"With international tensions rising, gold for December delivery climbed by 30 cents to close at $576.50 an ounce on the New York Mercantile Exchange. The contract traded as high as $583.40 earlier, after losing $6.60 in the previous session."

"Other metals followed gold's lead higher on Nymex, with the exception of platinum, which saw its January contract fall by $2.90 to close at $1,072.80 an ounce. December silver futures closed up 11 cents at $11.33 an ounce and December palladium added $7.35 to end at $308.95 an ounce."

"On Wednesday, Edmund Daukoru, president of the Organization of the Petroleum Exporting Countries who also serves as Nigeria's oil minister, said OPEC has agreed to cut its global production by 1 million barrels per day in a move to boost prices, but were still discussing how to share the cut, Dow Jones Newswires reported."

"'If gold does indeed deserve to close out the year on a high(er) note, it will do so only after having proven to its faithful that it does retain its security blanket attributes after all,' said Jon Nadler, at bullion dealers Kitco.com. 'It is not that gold's fundamentals are shaky; it just needs to re-align itself with one or more traditional drivers of demand and exhibit better correlation,' he said."