FS: Comex boosted by weak dollar but caution reigns ahead of FOMC
Orlando, Florida 12/12/2012 - Gold futures climbed modestly in the US on Wednesday after the dollar softened against most major currencies on the belief that the Federal Reserve will announce later today plans to pump more liquidity into the US economy.
Gold on the Comex division of the New York Mercantile Exchange was last up $6.10 at $1,715.70 per ounce. Trade has ranged from $1,710.10 to $1,717.40.
The gold market has essentially priced in the expectation that the Federal Open Market Committee (FOMC) will roll out a fresh bond-buying effort of $45 billion per month that will replace “Operation Twist”, which is set to expire at the end of the year.
Additional accommodative measures from the US central bank would be viewed as unequivocally supportive of gold because extra liquidity tends to debase the dollar and creates future inflationary risks.
“One of the biggest elements of Operation Twist was that it was inflation-neutral because long-term bond purchases were offset by selling short-term bonds. But now it looks like the Fed will replace Twist with outright bond buys, therefore increasing the amount of cash in the system,” a US-based gold trader said.
“[The Fed] is willing to risk inflation in order to boost capital investment and lower unemployment. That's a positive storyline for gold,” the trader said. “But should the Fed disappoint with anything less than $45 billion, then gold will knee-jerk lower.”
In wider markets, the euro was about a third of a cent stronger at 1.3044 against the dollar, while Germany's DAX and France's CAC-40 were up 0.4 percent and 0.1 percent respectively.
As for the more industrial commodities, light sweet crude (WTI) oil futures for January delivery on Nymex were up 63 cents at $86.42 per barrel and the most actively traded Comex copper contract was at $3.700 per pound, a rise of 1.35 cents.
Additionally, participants are nervously watching the painfully slow progress in the US fiscal talks. Lawmakers have until the end of the year to reach a compromise on budgetary issues. Inaction would trigger huge spending cuts and new taxes that could slow growth and tip the US economy back into recession.
Senate Majority Leader Harry Reid, a Democrat from Nevada, said yesterday that it will be “extremely difficult” to finish a deal by Christmas while the two parties remain very far apart.
As for the other precious metals, Comex silver for March delivery was up 23.8 cents at $33.255 per ounce. Trade has ranged from $32.995 to $33.305.
“The silver market is showing positive action overnight but the March silver contract wasn't able to climb above the prior session's highs despite a sweep of gains in the metals complex,” the CME Group said in a market commentary.
“Supposedly silver prices skidded at times in the prior session because of fears of a breakdown in the fiscal cliff talks and it also seemed as if some players were turning cautious ahead of the FOMC meeting statement,” CME added.
Platinum futures for January delivery were last down 50 cents at $1,639.50 per ounce and the March palladium contract was at $697.15, up 35 cents.
