Fed calms fears for now!
Precious metals futures rebounded to end a wild week, as the Federal Reserve unexpectedly lowered the discount rate 50 basis points to 5.75%, helping to shore up liquidity issues for short-term borrowing. In the process, the Fed seemed to dismiss its own statement that fighting inflation was its chief concern and focused on the threat to economic growth. This news sparked a sharp rally in U.S. Stock Index futures, and helped spur some fresh buying in the precious metals complex. A stronger Euro against the Greenback was also a supporting factor this morning. Yesterday’s sharp sell-off in Gold failed to take out solid support at the recent lows at $651.00 in the December contract, which may have spurred some short-covering, as well as fresh buying by speculative accounts. The next resistance point for December Gold is seen at the 50-day moving average at $675.00, with support found at $651.00. December Gold closed at $656.90, up $8.60.
Currency futures – with the notable exception of the Japanese Yen – were sharply higher this afternoon, as the massive unwinding of “carry trades” seems to have taken a breather with support coming from the Fed’s discount announcement this morning. Today’s trade is nearly the exact opposite of the recent trend, where safe haven buying supported the Greenback and the Yen was furiously bid as traders bought back short positions from their carry trades. The New Zealand and Australian Dollars – among the hardest hit of the currencies the past few sessions – were two of the biggest gainers in today’s “flight-from-quality” trade. The September Euro closed at 1.3488, up 0.0069 , the September Australian Dollar closed at 0.7917, up 0.0060 , and the September New Zealand Dollar closed at 0.6924, up 0.0144.
Mike Zarembski Senior Commodity Analyst
