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Gold gains after Fed ramps up support measures

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Holdings of SPDR Gold, iShares Silver drop

Investors this week should shift their focus to the US employment report. Due on Friday, the payroll report for August is the final one before the September FOMC meeting during while the Fed is expected to announce the beginning of QE tapering. Non-farm payrolls probably increased 176K in August, up from a 162K addition a month ago.

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Focus to Return to US Economic Data

There were 2 major events happened over the weekend. First, the PBOC announced to remove the floor of lending rate, a step further towards interest rate liberation. Second, Japanese PM Abe’s coalition was reported to have won a clear majority in the upper house election.

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China Lifted Lending Rate Rules, Japan’s Abe Controls Both Houses after Election

The US Dollar Index has sprung back into life in the last few days and is now trading back above 82 following Wednesday’s US Fed announcement on the QE program that has investors and traders piling into their safe haven currency.

Latest US Dollar Index Rate

The ICE US Dollar Index, which tracks the US dollar against a basket of six major world currencies was trading at 82.055, 09:05 GMT this morning on the ICE Futures Exchange. The US dollar has rallied since the Federal Reserve’s statement late Wednesday, signaling it could slow its asset purchases this year if the economy improves further.

“The price action in the US dollar confirms that the Federal Reserve meeting marked a major turning point for the greenback,” said Kathy Lien of BK Asset Management.

US Manufacturing Data

Stronger-than-expected data on factory activity in the US mid-Atlantic region and in home resales added to the dollar’s momentum, overshadowing an earlier report showing a rise in weekly jobless claims.

Investors re-established bullish bets on the dollar after Fed Chairman Ben Bernanke, following the central bank’s two day policy meeting that concluded on Wednesday, said the Fed was likely to end its bond-buying program, known as QE by mid 2014.

“The prospect of less QE (and) higher interest rates is something that should help the dollar, particularly in an environment where some other central banks are still moving in the other direction,” said Robert Lynch, senior currency strategist at HSBC in New York.

Euro to see a Bashing?

Analysts said the dollar could see volatile moves in the coming weeks as investors use every piece of economic data to try to gauge the health of the economy.

“Volatility is going to be the name of the game. We’re going to see some big ugly moves,” said Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida.

The dollar’s resurgence could put an end to the recent resilience of the euro, potentially pushing it below $1.30 as markets become wary about the prospect of lower ECB interest rates.

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US Dollar Index shoots back to 82 as investors eye safe haven greenback

WTI and Brent crude moved in different direction last week with the former for April delivery adding +1.60% while the latter slipped -1.29% during the week. This has further narrowed the WTI-Brent spread to $16.7/bbl, the lowest level since mid-January, and the 1Q13 average to $19/bbl.

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Weekly Fundamentals – WTI- Brent Spread Narrowed on Divergent Movements of Two Benchmarks

And there’s the million doolar question: Is it time to get back into gold when prices are holding out on a stronger US dollar whilst Europe and the US continue to see huge economic problems on the horizon.

The current price of gold moved higher to $1591.50 per ounce this morning as the US dollar remains mixed against the euro despite warnings from policymakers that the crisis in Europe is not over.

Yesterday, Germany’s central bank expressed concerns about the euro zone crisis and the European Central Bank’s moves to stem it. Germany’s Bundesbank said the euro zone crisis, which has eased as a result of the ECB’s funding promises, was not over, and that it had set aside billions more euros against what it deems risky ECB moves.

Latest Gold Price

Gold in euros rose to its highest level this month at €1229 an ounce, whilst an ounce of gold in UK sterling is at £1064. An ounce of gold in US dollars is at $1591.50.

US Dollar Index – Clues

The US Dollar Index, which tracks the greenback against a basket of major world currencies moved to a seven month high yesterday and is staring at the 83 mark this morning. The Index is currently at 82.940. The Dollar Index last broke through 83 back in August 2012, which interestingly enough marked the point where gold prices dipped below $1600 an ounce last year.

So the relation between gold prices and the US dollar remain intact, however economic issues in Europe may well have investors piling back into the safe haven metal as the spotlight is thrown back on the euro zone crisis amid a political stalemate in Italy, investors are scrambling for beaten down safe havens, and may well return to scooping up gold futures, which have fallen sharply in recent months.

Gold continues to be a good place to park some funds and for this reason, I feel the metal will continue to attract support at around $1,550.

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Is it time to get back into gold when prices are holding out on a strong US dollar?

OPEC’s monthly report for March suggested that global oil demand would reach 89.7M bpd in 2013, up 0.8M bpd from last year. While this forecast is largely unchanged from previous estimate, the carter warned that there are a number of potential downward risks in this forecast.

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Gains in Oil Limited as OPEC Suggested Downside Risks to Demand Growth

Wall Street rose higher as the ADP employment report showed that the US job market was stronger than expected. The optimism upstaged Philly Fed President Plosser’s reiteration of his stance that the last round of asset purchases by the Fed should be tapered. The Fed also released the latest Beige Book but is caught little attention.

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Better US Employment Data Sent Market Higher

The focus remained on the Eurozone. Developments in Spain and Italy continued to be worrisome while Fitch’s downgrade of the Netherlands’ credit rating outlook added concerns to the region’s economic prospect. The ECB meeting would not lead to any change in the monetary policy.

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Concerns on Eurozone Reemerge amid scandals and downgrades