-- Posted Tuesday, 22 March 2005 | Digg This Article

Market Analysis from CapitalUpdates.com:

As expected, the fed did raise interest rates ¼ point to 2.75%.  What everyone one was focusing was the wording in the fed’s statement, would the measured pace remain?

The fed did keep its current policy of a “measured” pace, indicating that they are not overly worried about inflation, but they did raise some concerns.  This all but guarantees another ¼ point raise in their next meeting, but their statement left things more open in the future.  They essentially brought the fear from dropping “measured” out of their statement without actually dropping it.  A drop in the “measured” pace statement would have essentially shown that they are worried about inflation.  Although they kept the “measured” pace statement, they also mentioned that “pressures on inflation have picked up in recent months and pricing power is more evident.”  This statement sent all aspects of the market in opposite directions with the 10-Year Treasury note yield jumping upward and erasing early gains in the bond market, the major indices turning early gains into significant losses, the US dollar turning early losses into gains, and precious metals turning lower after early gains.  Most expected a “measured” pace to be bullish for the markets, but it turned out that the fed’s comments on inflation fears scared all.

The fed has shown that they may be more aggressive while still keeping their “measured” pace.  Perhaps they are preparing to drop their measured pace in their next meeting?  Whatever the case, the fed is perceived as more “hawkish” or more aggressive than they were before.

PPI for February came in a bit higher than the expected 0.3% at 0.4%.  Core PPI (excludes food and energy) came in as expected at 0.1%.  The report had little effect on the markets as it came in near expectations.  Core PPI was a relief after January’s 0.8% mark and soothed some inflation fears early this morning.

Tomorrow at 8:30AM EST brings CPI for February expected at 0.3% and Core CPI expected at 0.2%, another key inflation index.  At 10AM are Existing Home Sales for February expected at 6.7 million.

Oil fell off this morning and increased losses on profit taking as OPEC discusses higher output targets.  Oil closed lower by $1.43 to $56.03.

The 10-Year Treasury note yield had fallen off a bit this morning and was around 4.48% before the fed’s statement, but it then jumped on inflation fears and ended the day higher by 0.085 points to 4.61%.  The June 2005 US Treasury bond was up about ½ point above 111, but it then erased those gains and ended the day lower by 26/32 to 109 24/32.

The Dow, Nasdaq, and S&P had traded higher early today on easing inflation fears from PPI and speculation on the fed’s statement.  All three indices were about 0.4% higher prior to the fed’s statement, but then dropped off a cliff following the statement and ended with significant losses.  November lows for the Nasdaq (8.5% loss YTD) and January lows for the Dow (2.8% loss YTD) and S&P are the result of today’s late day sell off as the Dow lost 0.9% to 10470.51, the Nasdaq lost 0.91% to 1989.34, and the S&P lost 1.02% to 1171.71.

The U.S. dollar index was trading a bit lower ahead of the fed’s statement, but rallied form there and ended the day higher by 0.49 points to 83.38.  The euro index was above 132 early on, but fell off from there and lost 0.31 points to 131.36.  The yen lost 0.16 points to 94.98.

Gold & Silver Report from GoldSeek.com & SilverSeek.com:

Gold Warehouse Stocks:	5,929,734	-
Silver Warehouse Stocks:	102,477,988	-

Gold and silver were mixed in very tight ranges both overnight and in New York trade this morning.  Gold gained $0.40 to $430.90 and silver lost $0.03 to $7.04.  Both metals have since broken critical support levels in the New York Access market with gold trading $4.20 lower to $426.70 and silver losing $0.12 to $6.92 around 5PM EST.

Gold and silver equities as well as the new gold ETF’s traded higher all morning, but moved closer to unchanged as the fed’s statement neared and turned markedly lower following the statement to end at or near their lows.

More analysis from Peter Spina, contributing author to The Gold Forecaster, see subscription information below in order to receive much more in-depth analysis on the gold and silver markets:

Early New York trading saw gold and silver rebound very slightly after the release of the PPI.  With COMEX trading over 45 minutes before the FOMC release, gold and silver have seen earlier gains erode.  At the COMEX close, gold finished higher by $0.40 to $430.90 and silver lower by 3 pennies to $7.04 an ounce  The similar trading pattern has been seen in the metal equities, slightly higher after yesterday’s nearly 3% decline in the HUI on moderate volume.

Update – FOMC Reaction:

Gold and silver are under pressure after the FOMC release.  The U.S. Dollar Index is jumping as the bond markets sink sending yields sharply higher. Despite a very short-lived pop in the HUI, it has continued its sell-off in the face of a strong US Dollar reaction.

Equity markets are selling off sharply along with the bond markets, despite the oil price down over a $1/barrel. Long term interest rates are jumping with the 10-year bond now higher at 4.59%.

The FOMC has once again raised the discount rate by another ¼% to 2 ¾%, as expected.  The increase is a series of increases initiated by the FOMC starting back over a year ago, in response to growing inflationary pressures after rates hit nearly a 1/2 –century low.  As shown above, the CPI index indicates rising prices (inflationary), instigated by cheap monetary policies including low rates.  Despite surging commodity, energy, metal and other prices, the CPI is still low compared to data seen over the past few decades.

With the CRB Index surging to nearly 2 ½ decade highs, are we witnessing the start to another 1970’s style burst in inflation?  This issue plus many more which relate and affect the price of gold and silver are and will be covered in the weekly Gold Forecaster newsletter service.

Gold & Silver Stock News Update from GoldReview.com:

Goldcorp’s and Wheaton’s acquisition of a gold deposit in Mexico, Bema Gold’s 2004 results, Placer Dome’s possible damages sought from Western Areas, Goldcorp’s exercised option to acquire a 50% interest in the Sidace Lake project, Desert Sun’s $25 million bought deal, DRDGold’s shutdown of its North West mines, Endeavour’s granting of stock options, and IMA’s drilling are among the big stories in the gold and silver mining industry making headlines today.

WINNERS

LOSERS

- Written by Chris Mullen

The Gold Seeker Closing Report is a free edition providing a daily wrap-up of gold & gold-related news.  For more in-depth analysis of the gold markets, subscribe to The Gold Forecaster.

All sources are given within the report and most articles can be found as they are released at http://www.capitalupdates.com/, http://www.goldseek.com/, http://www.silverseek.com/, and http://www.goldreview.com/.

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-- Posted Tuesday, 22 March 2005 | Digg This Article

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