Concern that the
may reveal increased anxiety over inflation later this week buoyed the dollar and sent gold skidding Monday.
Although investors will need to wait until Wednesday before seeing meaningful data, it's clear that no one is expecting that day's Federal Reserve Open Market Committee meeting to result in an interest rate cut. Meanwhile, some see the Fedgetting religion on the need to tame inflation, thus postponing the likely date of a future rate cut.
"The data continue to bear out the conflict between Fed's dual mandates," writes T.J. Marta, a fixed-income strategist at RBC Capital Markets in NewYork. "Inflation is at risk because core is not only above the Fed's comfort level but is also headed higher, while growth appears to be easing."
Depending on the strength of the overall economy, however, a longer pause may turn into an actual hike. The fed fund futures market is priced for 12% odds of a hike at the Jan. 31 FOMC meeting, up from 6% on Friday, according to Miller Tabak. In early September, the market was priced for a 50% chance of a cut at the January meeting.
Similarly, currency traders aren't betting on a cut, and they bid up the price of dollars. The greenback was recently trading at 119.275 yen, up from 118.69 yenlate Friday. It was also stronger against the euro, which was trading at $1.2547, compared with $1.2619 previously.
The strength in the dollar sent contracts for December delivery of gold tumbling $13.50 to close at $582.90 an ounce on the Comex division of the New York Mercantile Exchange. The declining futures draggeddown shares of the bullion exchange-traded funds; the
iShares Comex Gold Trust
streetTracks Gold Shares
were both off about 2% recently. Gold prices tend to move in the opposite direction to changes in the price of the dollar.
The gloom in the metals could not hold back equity investors, however, as the major indices climbed to new highs. The
Dow Jones Industrial Average
wasrecently trading up 109 points at 12,111. The rally helped lift shares of the major gold producers despite the falling price of bullion futures contracts.
were gaining 1.5%, while those of
Freeport-McMoRan Copper & Gold
were jumping 2.5%.
was up only a hair, however.
On the physical demand side, the general weakness in the price of the yellow metal may be helping stimulate buying.
"India's festival season arrived and brought fresh interest in gold jewelry," notes a weekly report from fund manager U.S. Global Investors. It also highlighted the return of buying now that the price has retreated from the May highs when the spot price of bullion traded over $700 an ounce.
In non-ferrous metals, Comex December copper contracts closed off by 1.1 cents at $3.451 a pound.