Global investors are sitting at the edge of the computer keyboards cued to the upcoming FOMC meeting. There will be little market action ahead of the meeting as traders have taken their positions although markets seem divided between tapering and no tapering. Gold is trading flat this morning holding at 1328.45. Gold prices ended slightly higher on Monday ahead of the August contract expiry as investors rolled over their short positions. However, caution ahead of the Fed policy meeting which starts today, limited the upside in prices. Gold premiums in India have jumped to $25-30 an ounce due to higher demand ahead of the upcoming festive season and supply constraints due to import restrictions. Gold prices internationally are expected to remain in range as investors would remain cautious ahead of the Fed’s policy meeting.
The US dollar gained a bit this morning adding 14 pips but remains below the 82 level as traders seem to be thinking that the Fed will continue its $85 billion monthly asset purchases. Any shift towards tapering, or reducing their stimulus will be positive for the US dollar and send it climbing. Just a week ago, the dollar was trading in the 84-85 level as traders thought that Mr. Bernanke was indicating that the Fed was ready to begin tapering. A report in Bloomberg that said the Fed would reduce their asset purchases to $68 billion sent the US dollar climbing. At this point no one is sure what the FOMC will do but recent data releases support the idea that the economy remains spotty and needs continued assistance. The IMF warned the Fed over the weekend that tapering now could upset the global recovery and growth forecasts around the world.
Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 927.35 tons, as on July 25, which shows that the majority of investors do not believe gold will rise indicating that the Fed will either taper or announce plans to taper soon.
Copper prices pared its early losses after US pending home sales came better than expected but fell in June from a near six-year high in May. Rio Tinto has put on hold its underground expansion plan at its Oyu Tolgoi copper mine in Mongolia worth $5 billion. Most of Chinese provinces missed the first half expansion plans, raising fears of China missing its annual growth target of 7.5%. Copper prices are likely to go down as investors would eye US consumer confidence and German consumer climate data amid demand concerns from China and the ongoing Fed monetary policy meeting. Silver could not sustain the $20 price level and has eased to 19.82 as industrial metals remain weak after lackluster data in the US and worries over China’s economic situation. Silver holdings of ishares silver trust, the largest ETF backed by the metal, declined to 10,419.04 tons, as on July 26.