Thursday, 22-March-2007
The euro currency hit two-year high of $1.3411 against the dollarlast night as Fed left interest rates unchanged, but removed earliertightening bias in its post-meeting statement. Investors sold the dollar asexpectations grew about the likelihood of rate cuts later this year.
Financial futures showed that the chances of the Federal Reserve cuttinginterest rates by June briefly rose to 48 percent from 24 percent earlier.As the market digested the FOMC news the expectations of a rate cut easedto 38 percent while at the end of Fed’s January meeting the chances of aJune cut stood at only 4 percent. As soon as gold usually moves in anopposite direction to the US dollar, the yellow metal rallied in the thinelectronic trading. The single currency also got boosted against the dollardue to the prospects of more euro zone interest rate hikes this year fromthe current 3.75 percent. Firmer oil was an additional supportive factor tothe precious metal’s strength after Wednesday’s close. Crude gained $1 abarrel, heading towards $61 as sharp drop in US gasoline inventories raisedconcerns ahead of the summer driving season in the world’s biggestconsumer. Gasoline stocks were dragged to 7 percent below early Februarylevels verses March. The yellow metal climbed over four dollars after theFOMC decision release to open around $664 levels on Tocom.
The whole priceaction was over by then with spot hardly moving in a narrow two dollarrange throughout the Asian session. During the early European hours themarket remained stagnant because participants were reluctant to push thedollar further down as Fed did say that inflation was still an area of itsmain concern. Subsequently prices tried to challenge the upside, but gotcapped by profit taking around $666 levels, followed by a fix of twodollars below the high on the first London fixing. Despite some of the weaklongs being liquidated the yellow metal remained firm and did not retreatbelow $663. After the opening of the Comex division of the New YorkMercantile Exchange the US initial jobless claims came out to be betterthan anticipated for the week ended on the 17th of March. Claims fell forthe third straight week to its lowest since the week ended February 3.According to the Labor Department there were no special factors behind thedecline with the figures pointing at a stable employment. The four-weekmoving average of claims, which is viewed as a better indicator of theunderlying trends, also fell last week. The data release failed to move themarket and range trading persisted for the next couple of hours.
Subsequently came the announcement of the US leading indicators which wereworse than estimated. Leading indicator is a summery measure designed tosignal changes in the direction of the aggregate economic activity. Theindex measures the average behavior of a group of economic time series thatshow similar timing at business cycle turns but represent widely differingactivities or sector of the economy. According to the Conference Board, aprivate and non-profit research and business membership group, thecomposite index of leading indicators declined 0.5 percent in February withthe prior month figure being downwardly revised. The index has been flat ordeclining in the nine out of the last twelve months. Another attempt tobreak higher was then made, and the peak extended to $667.30. The ascentwas also supported by crude climbing above $62 per barrel. Gold could nothold on to the gains for long though and gave them all away as sellingemerged on the second London fixing. Prices fixed on the lows, at $663, up4.25 dollars from the previous PM. Fed Division of Banking Supervision andRegulation Director Roger Cole said today that “at this time, we are notobserving spillover effects from the problems in the subprime market”. Healso added that Fed is concerned about the mortgage market, but housingcredit deterioration is focused on the narrow subprime sector. Investorscan take steps to fortify bad loans if their portfolios contain damagedmortgages. US dollar steadied and precious metal spent the rest of the NYsession quietly hovering around the $664 level with an exception of a briefdip down to $662.50. We believe that gold has the potential to trade higherif the $660 level, which has now become a support, manages to hold.
Silver also rallied after Comex close last night, to open ten centsfirmer on Tocom. The Far East session was however extremely quiet with theprices remaining bounded by the $13.32-13.43 range. In Europe the $13.40resistance was fruitlessly challenged many times before it was finallybreached during the NY trading hours. Spot rallied, mirroring gold’sascent, but ran into offers accumulated around $13.50 level. The whitemetal retreated slightly and spent the rest of the session very quietlyfluctuating on the top side of the intraday range. We believe that silverhas the possibility to trade higher with the first resistance representedby the $13.50 level.
MKS Gold & Silver, Daily Report
By Lidia Nazarova
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