Morning Market Update Jan 29

January 29th, 2013 by

Gold has recovered from yesterday’s sell-off due to options expiries, as bargain hunters come in this morning. The dollar is steady, and oil is slightly higher today after touching a new 4.5 month high overnight. Platinum gave up more of its recent gains with news that Anglo American Platinum (Amplats) will delay the closing of 4 platinum mine shafts in South Africa while engaging in talks with the miners’ unions and the government.

In an attempt to revive the economy, the Reserve Bank of India announced a quarter-point cut in the rate which it lends to banks, as well as a cut in the reserve ratio banks must keep on hand. Inflation in December was 7.18%, the lowest in three years. The RBI took this, as well as a government pledge to reduce the deficit, as an opportunity to aid economic growth. The rate cut is not presumed to be large enough to affect gold imports. The main drag on the Indian economy right now is their current account deficit, fueled by oil and gold imports. The government has announced a partial cut in fuel subsidies, and has instituted new tariffs on gold imports in an attempt to shrink the gap.

In the U.S., the Federal Open Market Committee begins its first meeting of 2013, with four new voting members (see “Meet Your 2013 Federal Reserve Open Market Committee”, below.) Since the Fed announced open-ended quantitative easing at its last meeting, nothing big is expected from this week’s gathering. Few expect the Fed’s purchase of $85 billion of mortgage-backed securities and Treasury bills a month to stop before the end of the year.  The Fed’s balance sheet is now over $3 trillion, and will swell to over $4 trillion by this time next year. There are no known details on how the Fed plans on selling this much paper back to the market without spiking inflation, which would greatly increase government deficits as well as affecting the wider economy.

by David Peterson