Gold was mostly flat overnight, but got a small hop in Europe ahead of the conclusion of the FOMC meeting, which will determine monetary policy for the U.S.. The consensus in the market seems to be moving to a “no tightening” announcement, as U.S. inflation is the lowest it has been since the early 1960s, and unemployment (and the low quality of the jobs that are available) is still higher than desired.
The dollar was up slightly in Asia, but is now down against all major currencies in volatile action. The euro is a whisper off the 1.34 mark, and the yen has strengthened to 95 to the dollar. With the expectation that the Fed will continue $85 billion a month in bond purchases, the market is taking into account debasement pressures on the greenback. The dollar is emulating precious metals to an extent, with choppy trading in a tight range.
The Nikkei was the lone bright spot in Asia overnight, rising 1.8%. Chinese stocks hit a six-month low on tight money supply worries, and the refusal of the Chinese government to loosen policies as it fights inflation. Hong Kong stocks got sucked down as Chinese stocks sank.
In Europe, stocks ended slightly down, off 0.25% on light, choppy trading as the market there joins the rest of the world in treading lightly ahead of the FOMC announcement.
On Wall St., stocks opened lower ahead of the 2pm announcement by the Fed. Some analysts hope that Chairman Bernanke takes time in his afternoon press conference to hammer home the difference between “not buy as many bonds” and “the Fed raising interest rates,” as many in the market seem unable to understand that they are two separate mechanisms.
Many in the market are also expecting Bernanke to go out of his way to soothe the equity markets, as the “froth” in stocks he was concerned about seems to have eased.
After President Obama basically announced yesterday that Bernanke will leave the Fed in January, there is speculation on how much force Bernanke’s words will carry as his exit grows near. Most analysts expect Janet Yellen to succeed Bernanke in the top spot at the Fed, and so far she has shown little if any deviation to the current vision of quantitative easing.
Rumors are that the big banks have amassed large long positions in gold and may be expected to use the FOMC announcement as an excuse to hammer gold. I suppose we will see this afternoon!