Gold Market traders are awaiting Fed Chairman Ben Bernanke’s semi-annual testimony about monetary policy to the U.S. Senate on Tuesday morning. Gold Market may remain volatile with an upside bias. Other Base Metals & Silver may swing sharply amid uncertainty in the Commodity Markets, but with a negative bias if no clues to QE are indicated.
U.S. retail sales fell 0.5% in June, which was their third straight monthly drop. The last time the U.S. had three straight monthly declines was in the second half of 2008. Yesterday’s much weaker-than-expected U.S. retail sales number boosted ‘QE3 Hopes’ and caused shorts to cover in both Gold and the Euro. Heavy speculation about the slew of U.S. data flow and Bernanke’s testimony is likely to mean “heightened volatility across the commodity markets, particularly in the Gold Market. The Gold Market will be closely scrutinizing Bernanke’s remarks for any fresh clues on easing of U.S.monetary policy forthcoming. Many believe the U.S.central bank will embark on another round of quantitative easing of monetary policy in the near future—QE3. Those notions were bolstered Monday when a weaker-than-expected U.S.retail sales report was issued. Markets would likely react in a bearish way if the Fed chief offers no fresh hints on QE3 forthcoming on Tuesday. At best, it seems, Bernanke will continue to express the Fed’s willingness to step in should the economic outlook worsen.
Uncertainty around the timing for further monetary stimulus is likely holding back interest in precious metals . Goldman Sachs has reaffirmed that it is bullish about the Gold Market in the coming months. Its six-month forecast for Gold Market is reportedly $1,840.00 an ounce gold prices. The bank says a sharp decline in Comex Gold net speculative length over the past six months has been the biggest driver to “weakness in Gold prices relative to what we believe are supportive fundamentals,” including record-low U.S. real rates and strong physical demand for Gold. “Specifically, central-bank Gold buying has continued unabated with preliminary IMF data pointing to Gold purchases of 4.64 million toz in the March-May period, the second-largest purchase in a 3-month window since February 2010. More impressively, ETF Gold holdings set a new record earlier this month, with their holding levels continuing to inversely track the decline in U.S. real rates remarkably well.”
International Monetary Fund on Monday reduced its world economic growth forecast by 0.1%, to its lowest expected world growth pace since 2009. The global recovery is “weak” and faces growing downside risks coming primarily fromEurope, the top economist at the International Monetary Fund said.
The IMF, which trimmed its U.S. forecasts slightly, said concerns were rising over a political battle brewing in Washington over how to avoid painful automatic spending cuts and tax increases at the start of next year. Washington is also expected to run into the statutory $16.4 trillion cap on its debt before the end of the year, raising the prospect of a default absent congressional action to raise it. The IMF urged policymakers to act to protect the recovery from slipping away. While significant progress was made at the recent EU summit last month, further steps need to be taken, IMF officials said. The European Central Bank should also consider resuming purchases of distressed government bonds through its Securities Market Program. The IMF now sees U.S. growth of 2% in 2012 and 2.3% in 2013, a reduction of 0.1 points both years. It aggressively cut its forecast in the U.K.by 0.6 points both years. Of other notable moves, it cut its Brazil forecast by 0.6 point this year but upped its 2013 view in that country by 0.5 point. The International Monetary Fund trimmed its China forecast to 8% from 8.2%. IMF revised its growth projections for India to 6.1% this year from 6.9%, and chopped its 2013 forecast to 6.5% from 7.3%.
Earlier this year, policymakers in emerging economies were worried about large-scale capital inflows and excessive appreciation of their currencies. Those fears have given way to concerns over rapid depreciation and increased volatility in exchange rates. Currencies like the Brazilian real and Indian rupee have depreciated by between 15 and 25% in less than a quarter, the IMF noted.
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