The expected profit-taking and technical pullback in gold after yesterday’s $40 jump has been muted, thanks in part to a dollar that hit a 8.5-month low overnight as forex traders bailed on the greenback. Markets have already started preparing for a repeat of the budget fiasco in Washington in 90 days. This is leading to more safe haven demand in gold, as investors shun the dollar and short-term Treasuries. The 3-month Tbill is now tainted in the eyes of many, as new issues will fall due in the middle of the next debt ceiling battle.
Another “can” that’s been kicked down the road until next spring is the planned tapering of the Federal Reserve’s month purchase of $85 of bond and mortgage-backed securities. With an estimated $24 billion permanently removed from 4th quarter GDP due to the nearly three-week government shutdown, the already fragile economy will need more propping up.
On the other side of the world, China reported third quarter GDP rose 7.8%, in line with analysts expectations. This lifted Asian stocks, and gave support to Euro stock markets as well. Wall St. is set to build on yesterday’s late rally on the news as well. In fact, the only major market NOT in the green is the Nikkei, where seven straight sessions of gains finally culminated in some serious profit taking. The euro hit the highest point since February against the dollar, and is trading around 1.36 this morning. The renminbi has advanced to 6.09 to the dollar. Despite this strength, there is little foreign safe haven demand in either currency, as traders flee the dollar. The only real “reserve currency” that can compare to the dollar is gold. Safe haven flight to the yellow metal is why today’s correction has been smaller than expected.