Central Bank Purchase Sends Gold Soaring

James Hyerczyk from ForexHound.com at 11/03/09

 

News that the Reserve Bank of India purchased 200 metric tons of gold from the International Monetary Fund is sending prices soaring today. The transaction which was worth about $6.7 billion is encouraging speculation that other central banks may be looking to buy gold. December Gold broke through its October high at $1072 early in the morning and is now pushing toward the $1085 area. New support is at the old top. There is no resistance at this time which means $1100 is the most likely target.

Stock index futures are trading sideways. Choppy action is the best way to describe today’s activity. Traders seem reluctant to position themselves either way ahead of tomorrow’s Fed FOMC meeting. Fear that the government’s stimulus money may be cut off soon is making investors worried as to whether the economy can continue to recover. Many investors expect a rocky recovery which means that stocks may be overpriced.

Treasury futures are trading lower. Talk of the Fed ending its stimulus plans is helping to push yields higher. Traders want to know what the Fed exit strategy will look like. This uncertainty is keeping traders on the sidelines.

The Dollar is trading mostly higher. Risk aversion seems to be coming back. This is giving the Dollar a boost. Strong gains in the gold market are providing support for the Canadian Dollar and the British Pound. Gains have been limited in the Pound, however as speculators are still betting the Bank of England will vote to pump more money into the economy at its meeting on November 5. Euro traders are looking for the European Central Bank to keep interest rates unchanged and to keep their stimulus plans intact until the economy turns around.

Higher gold prices are helping to buoy the crude oil market. Once again speculators are providing the support. The supply and demand picture is still bearish. The stronger Dollar and the sideways equity markets are not influencing December Crude Oil at all. Today’s its all about speculation.