Gold rallied today as global traders and investors reacted to more credit rating cuts, this along with higher crude oil prices sent speculators into the precious metals as an alternative “safe haven” investment choice. It also appears that physical buying has increased from India and China which has been the underlying support. The trade in December Gold has been very technical and the trading volume has been down. Much of the trading has been in reaction to the following data released this week.
Fitch places seven global trading and universal banks on rating watch negative: By Liza Horowitz
Oct. 13 (Bloomberg) –Action affects Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley.
• Barclays IDR on watch negative
• BNP Paribas IDR on watch negative
• Credit Suisse IDR on watch negative
• Deutsche Bank IDR on watch negative
• Goldman IDR on watch negative
• Morgan Stanley IDR on watch negative
SP taking various rating actions on five big French banks
• BNP Paribas cut to AA- from AA
• Soc Gen cut to A
• BPCE, Credit Agricole, Credit Mutuel cut to A
SP says outlook stable for those banks, but also say they see lower earnings prospects for all five
Here is a passage from the FOMC Minutes : (SOUNDS LIKE Q3)
Meeting participants expressed a range of views on the potential efficacy of policy tools tied to the size and composition of the Federal Reserve’s balance sheet. Many judged that these policies could provide additional monetary policy accommodation by lowering longer-term interest rates and easing financial conditions at a time when further reductions in the federal funds rate are infeasible. However, a number saw the potential effects on real economic activity as limited or only transitory, particularly in the current environment of balance sheet deleveraging, credit constraints, and household and business uncertainty about the economic outlook.
Participants noted that a SOMA maturity extension program would not expand the Federal Reserve’s balance sheet or the level of reserve balances, and that the scale of such a program was necessarily limited by the size of the Federal Reserve’s holdings of shorter-term securities so that it could not be repeated to provide further stimulus.
A number of participants saw large-scale asset purchases as potentially a more potent tool that should be retained as an option in the event that further policy action to support a stronger economic recovery was warranted. Some judged that large-scale asset purchases and the resulting expansion of the Federal Reserve’s balance sheet would be more likely to raise inflation and inflation expectations than to stimulate economic activity and argued that such tools should be reserved for circumstances in which the risk of deflation was elevated.
In commenting on the implications of a maturity extension program or another large-scale asset purchase program, several participants noted that the System should avoid holding a very large proportion of the outstanding stock of longer-term Treasury securities in its portfolio because the result could be a deterioration in market functioning. A number of participants suggested directing some purchases or reinvestments into agency MBS; however, a couple of participants saw such actions as unlikely to have benefits, or as a form of credit allocation.
German Chancellor Merkel and French President Sarkozy have pledged to recapitalize Europe’s banks and will have a plan in place within three weeks. Hopefully this action will produce some stability in the European Union.
The strong demand from China and India for physical Gold has also helped rally the price of Gold. Higher Crude oil prices have also helped the rise in Gold as normally the two markets trade inversely.
MY SWING NUMBERS 10/17
RESISTANCE # 2…………………$1700.00
RESISTANCE # 1………………..$1692.00
PIVOT ……………………………. $1677.00
SUPPORT # 1…………………….$1669.00
SUPPORT # 2…………………….$1654.00
Mike Daly / Gold Specialist
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