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Gold is trading at USD 1,752.70, EUR 1,304.87, GBP
1,137.30, JPY 133,736.30, AUD 1,785.46 and CHF 1,609.01 per ounce.
Gold’s London AM fix this morning was USD
1,765.50, EUR 1,310.40, and GBP 1,144.35 per ounce.
Yesterday’s AM fix was USD 1,792, EUR 1,322.22,
and GBP 1,155.23 per ounce.
The FOMC minutes from yesterday’s meeting have led to falls in global stock
markets as concerns over U.S. economic growth depress market sentiment
further. Asian stocks have been hit hard with the Nikkei down 2% on the day.
European markets have suffered further losses with the DAX, FTSE down between
3 and 4%. Gold is down 2% so far and looks technically weak. The Dollar index
has risen sharply this morning to 78.328, a nearly 1% gain.
 
An Investor's Reaction to the Markets - Wall Street
Journal
The economic growth consensus for the global landscape
has turned sharply negative in the past number of weeks and expectations for
growth have been reduced across the board. Monetary policies are now being
adjusted accordingly. The FOMC notes indicate that FED will now extend the
maturities by swapping near term debt will longer term, thus artificially
flattening the yield on debt over the longer term.
When capital is cheap it is misallocated.
These are
desperate times, and the pervasiveness of official intervention across the
major global economies is in itself causing potentially greater problems for
the future. It has been argued that lax monetary policies of the past 10
years led to massive re-distribution and arguable misallocation of credit
(housing, equity bubbles, and now bond bubbles), coupled with a disconnected
regulatory environment where foreign governments do not operate in lock step
to manage risks emanating from globalisation.
It now seems that recent)history
is now repeating itself albeit on the other side of the economic cycle.
The IMF have argued in their World Economic Outlook Report and
elsewhere that the current exceptionally low interest rates are spurring a
hunt for yield at the expense of traditional investment styles. This is
causing an aberration in the market where capital is flowing into emerging
markets faster than it would otherwise be expected to do so.
A section of the report that is worthy of closer
attention, reproduced below, acknowledges the role precious metals may play
in response to further political crisis.
Weak policy responses to the crisis and additional
risks surround weak policies in the euro area, Japan, and the United States.
These give rise to two concerns, including the potential for (1)
sudden investor flight from the public debt of systemically important
economies and (2) brute force fiscal adjustment or loss of confidence because
of a perceived lack of policy room. Under either scenario, major declines in consumer
and business confidence are likely, leading to sharp increases in saving
rates that undercut activity.
Investors could take flight from government debt of key
sovereigns. There are few signs of flight from U.S. or Japanese sovereign
debt thus far, and few substitute investments are available. Although
sovereign credit default swap (CDS) spreads on U.S. debt have moved up lately
and U.S. government debt experienced one rating downgrade, the impact on
long-term interest rates of the end of the Federal Reserve’s
E2 has been offset by inflows into Treasury securities. Interest
rates on Japan’s public debt remain very low, despite adverse shocks to
the public finances resulting from the earthquake and tsunami. Nonetheless,
without more ambitious fiscal consolidation, a sudden rise in government bond
yields remains a distinct possibility as long as public debt ratios are
projected to rise over the medium term. Long-term rates on the debt of
France, Germany, and a few other economies are also very low. However, this
could change if commitments at the national or euro area level are not met.
The risks could play out in various ways:
• Investors could increasingly reallocate their
portfolios to corporate or emerging market debt: This would be the least
disruptive scenario, because it could spur demand, although not without
potentially raising problems related to absorptive capacity.
• The term premium could rise as investors turn
to short-term public debt: This would make the global economy more
susceptible to funding shocks.
• Rates could move higher across the yield curve,
with depreciation of the U.S. dollar or the Japanese yen (mild credit risk):
This might materialize in the context of a broader sovereign rating downgrade
that does not upset the status of the United States as the major provider of
low-risk assets or an accelerated reduction in the home bias of Japanese
investors.
• A strong increase in credit risk could quickly
morph into a liquidity shock, as global investors take flight into precious
metals and cash: This could occur if there were major political deadlock on
how to move forward with consolidation in the United States or if the euro
area crisis were to take a dramatic turn for the worse. The global
repercussions of such shocks would likely be very severe.
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SILVER
Silver is trading at $37.96/oz,
€28.22/oz and £24.62/oz
PLATINUM GROUP METALS
Platinum is trading at $1,721.50/oz, palladium at
$658/oz and rhodium at $1,725/oz.
NEWS
(The Econmic Times)
Gold weakens on dollar rally after Fed decision
(Wall Street Journal)
Gold Pulls Back on Fed Plan
(Reuters)
Greece sharpens austerity; IMF warns on banks
Mark O’Byrne
Goldcore
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