Equities are trading up after increased import and export figures from Japan supported gains. The G-20 summit endorsed policies related to the Spanish Banks as the yields of the 10-year bond has increased above 7 percent hitting a record high for the EU at 7.13%. Spain is also scheduled for a bond auction tomorrow and incase the yields continues to increase then it may further instill panic among investors. Further, the German chancellor has hinted incentive for Greece in the form of negotiation of the bailout, may instill confidence among traders as Greece continues to remain a part of the single currency bloc, and may support gains in riskier assets.
Today, markets would eye the FOMC rate decision and volatility might be witnessed on the back of increased assets purchase from Fed, where the US central bank may keep the benchmark interest rate unchanged while extension of “operation twist” may not be ruled out.
Slowing US economic activity may pressurize the Fed officials to provide some cushion in monetary policy since the inflation may not be the concern as it has already declined and may provide more room for the Fed chairman. However, just 6 months prior to the Presidential elections, Fed may hesitate to provide QE3, however increased hopes of easing may continue to support gains in base metals. The German Producer prices are likely to decline further due to weak demand for raw materials and the US mortgage applications may also remain weak due to slower housing starts and lack of demand for durables.
Gold prices are holding the line with little movement or activity, staying within a stiff range amid an upheaval of Greece remaining within the Euro. Despite yesterdays G20 announcements, the metal could have had hardly any gain while; the euro rallied. This is showing a divergence between euro-gold correlations. However, the stickiness in gold’s move is expected to change one direction or another as the FOMC prepares to release its statement after its two day meeting.
The Asian equities are trading higher today morning as a fresh stimulus expectation pushed the market sentiment up. But, gold did not, may be because of the chance of liquidity are not evenly approved among the officials. However, economists believe that the Fed will at least extend the operation twist program ahead of its 30-Jun deadline. On either case, “not announcing QE3” or “extension of operation twist” would be a balancing act for gold.
Meanwhile, the upbeat US housing data may not help improve the mortgage applications numbers today which may support the gold. But, at the latest, an offer of operation twist or QE3 could support the riskier assets to fly high (immediate impact), shrugging off the metal’s safe haven appeal. Nevertheless, before the FOMC starts, high market expectation for the launch of QE3 could provide an upside run on gold; while an absence of the same (most likely) could be fatal for the metal.
Silver prices will most likely take cues from gold and follow the same bounce in today session.
Remember the famous Bernanke Gold Strategy, when Bernanke speaks gold skyrockets or tumbles but never stays the same.