SPOT MARKET gold prices drifted as low as $1694 per ounce Tuesday morning in London – 1.3% down on the week so far – while stocks and commodities rose slightly and US Treasuries dipped ahead of today’s US Federal Reserve interest rate decision.
Silver prices fell to $33.43 per ounce – 2.5% down on last week’s close – before, like gold, recovering some ground before lunchtime.
“There’s not much going on, especially on the physical side,” Dick Poon, Hong Kong-based precious metals manager at refiner Heraeus, said Tuesday morning.
“Everybody is staying on the sidelines.”
“On and off, we are still seeing some buying, but it’s not much,” one Singapore dealer tells Reuters news agency.
“It’s all about wait-and-see.”
In Washington later today the Federal Open Market Committee is due to announce its latest monetary policy decision. The Federal Reserve has held interest rates at 0.25% since December 2008. Since then it has also launched two rounds of so-called quantitative easing, as well as Operation Twist last September, which runs until June this year.
“If there are no announced changes to the Fed program [today], then the Fed statement is unlikely to have any obvious implications for the US Dollar,” says James Steel, chief commodities analyst at HSBC in New York.
“This would also mean that the FOMC meeting is likely to have little effect on gold.”
“Gold prices could be supported if we see some fresh easing talk from the US Fed,” says Natalie Robertson, commodity research strategist at investment bank ANZ in Melbourne.
“But at the moment the market does not appear to be pricing in that outcome.”
“QE3 [a third round of quantitative easing] is not a guarantee,” adds says Michael Hanson, US economist at Bank of America Merrill Lynch.
“We would expect the Fed to ease further only if growth drops below trend, inflation undershoots their target and possibly the equity market sells off.”
“I don’t think they’re convinced they won’t need to add additional stimulus,” counters Carl Riccadonna, New York-based senior US economist at Deutsche Bank.
“But the tone of data in last three months seems to have been surprising the Fed to the upside.”
Monthly nonfarm payroll data released last Friday show that the US economy added 227,000 nonagricultural private sector jobs in February, slightly above analysts’ consensus expectations.
The unemployment rate meantime held at 8.3%, having fallen from over 9% last year. The latest US consumer price inflation data are due to be published this Friday.
Earlier on Tuesday, the Bank of Japan left its main policy rate on hold at 0.1%. Like the Fed funds rate, the BoJ’s main policy rate has not changed since December 2008.
Here in Europe, Spain agreed to additional budget cuts at Monday’s meeting of Eurozone finance ministers, lowering its deficit target as a percentage of GDP this year by half a percentage point.
Earlier this month, Spain said it would not comply with the European Union’s 2012 target of 4.4% of GDP. Instead, in what is called a “sovereign decision”, Spain announced a target of 5.8%.
Eurozone finance minister chairman Jean-Claude Juncker last night described that target as “dead”.
Spain has agreed to target a deficit-to-GDP ratio of 3% in 2013.
“That is the main figure that should be kept in mind,” said Juncker on Monday.
Spain’s 2011 target, agreed by its previous administration, was 6%. The actual figure achieved was 8.5%, the Wall Street Journal reports.
The German government meantime only managed to implement 42% of its planned spending cuts last year, German newspaper Der Spiegel reports.
The ongoing investigation into alleged “manipulation” of the benchmark Libor exchange rate – which acts as a measure of the rate at which banks lend to each other – could lead to a change in the method of calculation, news agency Bloomberg reports Tuesday.
At present, bank employees are asked to report their estimates of what it would cost to borrow in the interbank market, rather than reporting rates from actual transactions. The US Justice Department has begun a criminal investigation into whether banks have underreported the rates they have been charged in order to appear healthier and thus hide any financial difficulties. Enforcement agencies in Europe, Canada and Japan have also launched investigations.
“Proved manipulation of index rates could expose banks to a legal and regulatory bonanza,” the Financial Times writes, “from big fines to class action lawsuits, several of which have already been filed.”
Libor, referenced in many standard financial contracts, is used as the benchmark rate for $360 trillion of securities, Bloomberg reports.
Barclays, Citigroup and UBS have all voluntarily given information to regulators about possible abuse of the Libor setting process. Employees at several other institutions have been “fired, suspended or placed on administrative leave”, the FT reports. These banks include Deutsche Bank, HSBC, interdealer brokers Icap, JPMorgan Chase, Brokers RP Martin and Royal Bank of Scotland.
RBS is facing potential legal action meantime from shareholders who allege that the information in its rights issue prospectus, published in 2008 just weeks before the UK government bailed out the bank, was misleading.
RBS is also among a group of banks the New York Times reports is offering to buy claims from customers of MF Global for up to 91 cents on the Dollar. MF Global collapsed late last year, resulting in losses for some investors who were using the brokerage to buy gold via futures contracts.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
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