Gold prices saw moderate selling pressure in Asia overnight, as the Chinese government relaxed lending rules to stock brokerages. The Shanghai composite rose 2% on the day. Spot gold is trading $10 under Friday's close in New York, at $1,245 an ounce. The dollar is trading flat, while crude oil has reversed early losses.
Look for support at $1,242, then $1,237. First resistance is at $1,246, then $1,251.
The Risk Is On
Friday saw the S&P 500 finally erase 2016's losses to finish in the black. The Dow beat it to its first gain for 2016 on Thursday. Volatility is dropping as a risk-on sentiment builds in equities on the back of Wednesday's FOMC meeting.
Crude futures lost 1.9% in New York to settle under $40 a barrel, but notched the fifth weekly gain in a row. The April contract expires today, so we'll be watching the May contract now. The notable drop in crude prices is being blamed on the Baker Hughes rig count, which increased by one lousy rig. This is the perfect illustration of the present fragility of the oil market.
Gold futures saw a 0.9% loss on Friday, after a 2.9% gain on Thursday. April gold closed at $1,254.30, down $10.70. Spot gold closed at $12,55.00, down $2.60.
Lacker Sees Inflation Returning
Richmond Federal Reserve President Jeffrey Lacker, a noted hawk, said that he expected inflation to return to 2% "in the medium term" as oil prices recover and the US Dollar stops appreciating. “Inflation has been held down recently by two factors, the falling price of oil and the rising value of the dollar,” Lacker said. “But neither factor is likely to depress inflation indefinitely. After the price of oil bottoms out, I would expect to see headline inflation move significantly higher.”
St. Louis Fed President James Bullard sounded a slightly more cautious note. Also blaming the oil glut on lower than expected inflation, he noted that "Prudent policy suggests edging the policy rate and the balance sheet towards more normal levels." The Fed is holding $4 trillion of toxic mortgage-backed securities as well as government bonds it bought during its three quantitative easing measures.
The subject at the international monetary policy meeting in Frankfurt, Germany, was the possibility that the actions of the Fed and ECB keeping rates so low for so long has quashed inflation instead of fueling it.
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