Geithner Tries to Reassure about Dollar Despite Ultra Accomodative Monetary Policy

Gold

Gold and silver maintained their positive momentum yesterday and eked out another daily gain after initial weakness. Both are marginally lower today and yesterday’s lows of $1352/oz and $23.70/oz are now short term support which could be tested if we have a period of dollar strength. However, the technicals and the fundamentals remain resoundingly supportive of higher prices and the round figures of $1,400/oz (and $24/oz) remain short term price targets. Gold’s recent rise has been largest in dollar terms but there have also been gains in all fiat currencies including euros, yen, Swiss francs and particularly sterling (see charts below). Sterling gold is close to the record (interday) nominal high of £867/oz and is being supported by concerns about another round of quantitative easing by the Bank of England.

Gold is currently trading at $1,364.30/oz, €981.85/oz, £865.07/oz.

Gold in GBP – Daily (180 days). Click on the image to view full size.

US Treasury Secretary, Timothy Geithner, said overnight that the US would not devalue the dollar and no country could devalue its way to wealth. Geithner said that the US needed to "work hard to preserve confidence in the strong dollar." The dollar is flat after Geithner’s comments which will reassure some investors and the US large creditors, particularly the Chinese. However, many will adopt the maxim that ‘actions speak louder than words’ and will be concerned that QE2 will inevitably lead to the dollar again falling in value.

Federal Reserve purchases of between $500 billion of and $1 trillion of Treasuries may be announced at the Fed’s meeting next month. Despite already having lowering US interest rates almost to zero and buying $1.7 trillion of securities, policy makers are discussing another massive expansion in the Fed’s balance sheet. Monetary policy is already extremely accommodative and despite that the Federal Reserve and other central banks look certain to embark on a new round of quantitative easing.

Gold in GBP and USD – Daily (10 Year). Click on the image to view full size.

Currency and the gold and silver markets await monetary policy makers opinions this afternoon with FOMC members Yellen and Dudley, Bundesbank President Weber, Bank of England Governor King, and Fed Chairman Bernanke all scheduled to speak. Weber has already dissented from the new QE2 proposals and continues to be worried about the long term inflationary risks posed by  the most radical monetary policy seen in modern history.

Silver

Chinese silver exports look set to plummet by some 40% which is bullish for silver. The small sized silver market is already under pressure from increasing demand, particularly investment demand, and a marked decline in supply from the world’s leading producer will lead to prices continuing to rise.

Silver is currently trading at $24.14/oz, €17.37/oz and £15.31/oz.

Platinum Group Metals

Platinum is trading at $1,681.50/oz, palladium is at $578/oz and rhodium is at $2,175/oz.

Mark OByrne

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