Dollar Slides, Metals Edge Higher on US GDP Tallies

The final session of the week opened against a background wherein fresh credit-rating pain fell on Spain again (this time with a two-notch two-punch by S&P). The country reported sliding retail sales, and worst of all, an unemployment figure some three times the percentage of that of the US – 24%. The markets remained subdued however following this latest ominous development in Europe. Players appeared focused on the imminent release of US first-quarter GDP estimates.

The data confirmed some of the dovish stance manifest in Mr. Bernanke’s press conference a couple of days ago. The US reported a 2.2% rate of growth in Q1 (against the 2.7% that was anticipated by economists). Growth was somewhat hampered by a decline in business spending and the government sector, but was at the same time boosted by strong spending among consumer and by rising exports.

The US dollar and stock index futures frowned upon the GDP estimate and headed lower. The development may give gold players another chance at trying to go for the assault on the $1,660-$1,675 resistance area provided the dollar keeps at lower levels and provided the euro does not suffer too much in the wake of the Spanish debacle.

Spot gold dealings started off with a modest, $1.30 per ounce decline in New York. Bullion was bid at $1,655.80 on the open. Silver climbed four cents to the $31.13 mark per ounce. Platinum added $3 at $1,568 while palladium rose $1 to $672 the ounce. No changes were reported in rhodium at $1,350 per ounce. Other commodities appeared flat with oil stalled at $104.50 a barrel, copper marking time at $3.83 (a three-week high) and aluminium advancing 1%. Chinese markets are closed Monday and Tuesday while those in Japan are on hiatus on Monday. All of the precious metals currently appear to be stuck in range-trading patterns.

Speaking of some of the base and noble metals, if there is one good thing to possibly anticipate from the emergent shift in China’s economic profile, it might be the fact that certain metals will benefit from it. The risk of a hard landing in China is still on the table and could impact the demand for copper, silver, steel, etc.

However, the macro-level shift away from exports and capital investment towards domestic consumption and growth based on same bodes well for some very specific commodities. Among these would be palladium, nickel, aluminium, coffee, and other items related to rising living standards. Bloomberg News identifies the Chinese car market as pivotal for palladium demand, now that the country has surpassed the US one in size three years ago.

Well, Wednesday came and went, and depending on what one wanted to hear or to read, there was an ample amount of post-Fed meeting headlines to choose from, or to become further confused by. For instance, if one was leaning towards the paradigm that the Fed is slowly turning away from its hitherto highly accommodative monetary policy stance, there was MwMstory available to parse.

In fact, gold prices at one point on Wednesday dipped to lows near $1,625 on just such perceptions. Mr. Bernanke himself underscored the unlikelihood of further, careless QE dole-outs by saying that it would be “reckless” to pursue inflation-yielding policies that might offer only “doubtful gains” to an already recovering US economy (almost sounding like a GOP poster-boy there).

On the other hand, if one desperately wanted to hear something dovish coming from the Fed, well, there were stories to suit that “mood” on tap as well. After all, some will say that even after leaving policy on hold Mr. Bernanke also promised that the Fed remains prepared to do more as needed to make sure that this recovery continues and that inflation stays close to [the 2%] target,” and that “additional bond buying is still very much on the table.” Based on that take, gold prices not only recovered from the lows they touched the other day, but were able to stage a decent bounce all the way up to the $1,660 area on Thursday.

But let’s leave Mr. Bernanke’s words out of the equation for a minute and dissect that which his team members communicated to the markets via their individual projections. In the wake of the FOMC meeting we have learned that while only five officials felt that short-term rates ought to rise to 2% or higher prior to the end of 2014, this time around there were seven policymakers who shared that view and more than half of the US central bank’s officials envision rates climbing past 1% by that same time.

Perennially hawkish holdout Jeffrey Lacker (Richmond Fed President) once again voted against the group and said that economic progress in the US justifies hiking rates sooner than that. Let us however not lose track of the fact that the fed-funds rate expectations are for 4% or higher within about five years’ time, and that only four out of seventeen Fed officials project 0.25% to be still on the table by the end of 2014.

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