Gold regained lost ground overnight, up .75% from yesterday’s New York close to regain the $1,275 range. Other precious metals were essentially flat this morning. The dollar, which had been softer overnight, saw a sharp bout of profit-taking at the New York open, then shot into positive territory.
Wall St. opened lower, and stock indexes are down across the globe, as mixed messages from Federal Reserve officials yesterday gave traders the jitters. Atlanta Fed President Dennis Lockhart told an audience yesterday that a December taper of U.S. quantitative easing policies remained on the table, but that the delay in economic reports caused by the government shutdown during the budget impasse might stay the Fed’s hand until next spring. Also yesterday, noted dove Minneapolis Fed President Narayana Kocherlakota called on the Fed to take aggressive action to bring the economy to full employment.
This will increase the scrutiny (if that’s possible) on Fed Vice Chairman Janet Yellen as she testifies before the Senate Banking Committee tomorrow on her economic views. Yellen has been nominated to replace retiring Fed Chairman Ben Bernanke.
The prospect of a reduction in the $85 billion a month of bond and mortgage-backed securities purchases by the Fed is roiling the economies of developing nations. If the Fed buys fewer bonds each month, the yield will rise. This will attract money that poured into developing nations looking for return back to the safer environment of U.S. bonds. The act of pulling that money out of those nations and returning it to the U.S. will remove liquidity from their markets, and devalue their currencies, as the money is converted back into dollars.