-- Posted Tuesday, 20 July 2004 | Digg This Article
Gold held a tight range overnight and stayed above the $405 level until about 6AM EST when it started a steep move downward in anticipation of U.S. economic reports and comments from Greenspan.
Despite expectations of “U.S. housing starts seen rising” and “U.S. housing starts probably increased last month,” “U.S. housing starts fell 8.5% to a 1.802 million rate in June.” This is the lowest level in a year and suggests residential construction will contribute less to economic growth in the coming months. The blame for the loss: “An almost one percentage point increase in 30-year fixed mortgage rates since last year's record low.” This clearly points to pressure on the Fed to keep future interest rate increases at a “measured” rather “aggressive” pace and therefore should put pressure on the U.S. Dollar and thus send metal prices higher. But what did happen rather than what should have happened? The Dollar unexplainably saw healthy gains and the metals went lower.
Why? Well talk to the folks at GATA and I’m sure they will talk of market manipulation and it is hard not to believe them after watching events like this unfold over and over, especially with the U.S. Dollar index sitting just above the 100-day low support of 87.00, which was tested yesterday. This critical level, if breached, would spell bad news for the index and likely means it would back fall to the sub 85 level. It appears that there are some major forces unwilling to let this event happen, for now.
Another explanation could be the anticipation of Greenspan’s remarks being bullish for the dollar, so let’s get into what did Greenspan did have to say. (Full text of prepared remarks here)
A “measured” pace with a transition to a more neutral stance of monetary policy and guards against inflation if necessary were the highlights pertaining to interest rates. These comments are basically reiterations of comments made by FOMC members in the recent past, yet the dollar jumped and stocks gained. These events are most likely due to comments about a strong economy despite recent reports that show otherwise. The recent slowdown in the economy is “short-lived” and the economy is self-sustaining, Chairman Greenspan said. Economic conditions are “quite favorable” and the economy can sustain a “dynamic” change in rates were comments that also contributed to the dollar’s strength. Future economic reports will now be expected to show strong growth and anything but strong growth should have harsh effects on the dollar and the major indices.
If the cause for gold’s weakness today was anticipation of bullish comments for the dollar from Greenspan, the expectations came true and weakness should be priced in, hopefully meaning no further weakness will be seen tomorrow. Gold ended down $3.90 to $401.40 in New York trade and silver rebounded to close just off its high for the session, gaining $0.01 to $6.60.
The major indices were able to take nice gains off of the remarks with the Dow gaining 0.52% to 10146.20, the Nasdaq ending up 1.76% to 1917.07 and the S&P ending up 0.71% to 1108.67. Oil ended down $1 to $40.44. The U.S. Dollar index gained 0.72 points to 87.87.
The XAU and HUI were down early in the day and rebounded slightly before turning just slightly lower after Greenspan’s remarks. The XAU ended down 0.54% to 87.78 and the HUI ended down 0.61% to 189.20.
“U.S. housing starts unexpectedly fell in June to the lowest level in a year, suggesting residential construction will contribute less to economic growth in coming months. Builders broke ground on homes at a 1.802 million-unit pace last month, compared with a revised 1.97 million rate in May, the Commerce Department reported in Washington. Building permits, a sign of future construction, declined 8.2 percent to a 1.924 million pace.”
- Contributing authors: Chris Mullen & Peter Spina
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-- Posted Tuesday, 20 July 2004 | Digg This Article
Gold Seeker Closing Report – July 20, 2004
