-- Posted Thursday, 24 April 2008 | Digg This Article
| Source: GoldSeek.com
The Morning Gold Report by Peter A. Grant
April 24, a.m. (USAGOLD) -- Gold is testing below the $900 level, weighed by a rebound in the dollar and slightly easier oil prices. We've also noted significant redemptions in the gold ETF this week, which has pushed the yellow metal lower within the recent range.
The dollar has gotten a boost from declining sentiment in the Eurozone. German Ifo for Apr dropped to 102.4, from 104.8 in March. This reading was much worse than expected. French business confidence also declined in Apr to a 16-month low. These are clear indication that Europe is indeed likely to feel the effects of a slowing global economy.
The weaker economic readings give ECB doves something to hang their hat on. While a near term rate cut still seems unlikely given the present inflation picture in Europe, premium associated with a potential ECB rate hike is coming out of the market. The euro has retreated back to the 1.5700 area against the dollar, after setting a new record high above 1.6000 earlier in the week.
Euro weakness has benefited the dollar, pushing the trade weighted dollar index back above the pivotal 72.00 level. Nonetheless, the DX remains confined to the recent range with solid resistance at 72.84/73.16 well protected at this point.
Decent risk appetite is weighing on the low yielding safe-haven currencies, further bolstering the dollar. USD-CHF has pushed to a new high for the month, while USD-JPY has probed back above 104.00.
The dollar seems to be getting additional support from a growing impression that the Fed is coming to the end of its easing cycle. A 25bp rate cut is still expected next week, but it has been suggested that the Fed will go on hold at subsequent FOMC meetings to assess the effectiveness of monetary policy to date.
One might also view this as the Fed is running short of bullets with the Fed funds target likely to be at 2.0% next week. There have been plenty of indications in recent weeks that market pressures associated with the housing, subprime, credit/liquidity crises are not easing. If the Fed does indeed pause after next week, I think they will be quick to jump back on the rate-cut horse at the first sign of continued risks to growth.
The Fed would be likely to ride that horse all the way to 1% if necessary. If things get bad enough, and there is still certainly that chance, the Fed might be forced to take a page out of the Japanese play-book and lower rates to 0% in a last ditch effort to stimulate the economy. Beyond that, there is always quantitative easing. The Fed certainly doesn't seem to have an aversion to creating liquidity.
Redemptions in the gold ETF have pushed total gold in trust down to 611.75 tonnes, from 641.82 tonnes on Monday. This is down from a record high of 663.83 tonnes in Mar. The market is showing decent resiliency in the face of these redemptions.
Physical interest out of Asia and the Middle East, particularly jewelry buying in India seems to be offsetting paper sales to some degree. India is the world's largest consumer of physical gold and with the wedding season at hand, and the festival season looming, they are viewing the recent dip as a buying opportunity.
Mike Kosares, the president of USAGOLD - Centennial Precious Metals likes to say that paper selling provides great buying opportunities in the physical. The Indians, as well as our clients seem to be taking this to heart.
Gold Market Movers:
US new home sales for Mar plunged 8.5% to 0.526M, well below market expectations.
US durable goods orders for Mar -0.3%, worse than the market was looking for, versus a revised figure of -0.9% in Mar.
US initial jobless claims for the week ended 19-Apr fell 33k to 342k, versus 375k in the previous week.
Fed Watcher Greg Ip suggests in the WSJ that a Fed policy pause may be "on the table".
German Ifo for Apr fell to 102.4, much worse than expected, versus 104.8 in Mar.
UK retail sales for Mar fell 0.4% m/m.
UK CBI manufacturing orders index for Apr fell to -13, much worse than the market was expecting.
Asia Gold - India in mood to buy, price drop entices jewellers
Platinum may hit $2,400 an ounce this year: GFMS
