Spot gold climbed back over $1,700 an ounce in Asian trading overnight, only to drop below that mark on the opening of the London market. Discouraging news from Germany, with Bundesbank lowering estimates of German economic growth for 2012 and dropping the forecast for 2013 to a near-flat 0.4% hammered the euro as the economic malaise on the periphery of the Eurozone seeps into the core. Oil futures have also faded today in result of this news.
On the COMEX open, gold sees the usual 8:30am hammer blow, dropping gold $11 to $1,687/oz, but then recovered within minutes. $,1685/oz seems to be the point of hard support for gold right now. We're seeing a bit of downward pressure on gold as the dollar rallies on euro and oil dropping, as well as a better than anticipated non-farm payroll report this morning. Unemployment was announced as dropping to 7.7%, a new four-year low, giving the greenback more strength. Part of the boost in the dollar is coming from covering shorts, as well as a bit of safe haven movement into the dollar from the euro.
The big market maker next week will be the Fed Open Market Committee meeting, and the anticipated announcement of QE4 and/or the transformation of the expiring "Operation Twist" to open-ended conversion of short term T-bills holdings to long-term bills by the Fed. UBS states that any aggressive move by the FOMC nest week will "prompt a sizable response" in the gold market. They also mention that the inevitable increase in the U.S. debt ceiling this month give the market "considerable gold upside potential." Barclays also anticipates Operation Twist becoming an open-ended operation, as well as the ECB cutting rates in the near future.
Total Fed assets have tripled since 2007, to $2.86 trillion. Extending Operation Twist indefinitely, combined with continued purchase of mortgage-backed securities, is estimated to swell the Fed's balance sheet to a staggering $4 trillion by the end of 2013, and has people in the market openly wondering how the Fed will divest itself of such a large portfolio without wrecking the economy and igniting high inflation.
At 10 AM, spot gold has edged back over $1,700/oz, and spot silver is showing a marked upturn this morning to over $33/oz.