Intraday Market Thoughts

Gold Plunges Amidst Risk Rally

by Adam Button
Aug 23, 2011 23:48

Gold fell nearly $90 after hitting a record high early on Tuesday as broad sentiment reversed and stocks soared. NZD and AUD were easily the top performers while CHF and USD lagged. There is no top-tier data on the docket in the Asia-Pacific region but New Zealand trade balance and Australian construction work bear watching. Ashraf's Premium trades will be issued later in the day as he is on travel schedule. He will shed light on the latest metals' decline.

Gold at $1831 after touching $1917/oz. Silver posted a similar percentage decline, falling to $41.90. The losses came as the S&P 500 gained a whopping 3.4% to close at 1162. A minor, magnitude 5.8 earthquake in Nth East of the US spooked traders but only for several minutes.

There were several reasons for the rally: 1) Speculation is growing about Fed action, or more likely the hint of action, when Bernanke speaks Friday from Jackson Hall. 2) Financials improved on a rumour that JPMorgan will take over Bank of America with government support. An analyst also helped by saying BoA is well capitalized -- this reminds us of Financial Crisis Part One. 3) A short squeeze.

BUT HOW CAN STOCKS' RALLY when the Richmond Fed Index hit 2-year lows & new home sales continue to drift below the 300K mark? Can this rally more nothing more than buying on the dips?

The gains came despite some downtrodden economic news. The Richmond Fed fell to -10 compared to the -5 expected and -1 prior. New home sales fell to the lowest in five months, slipping to 298K compared to the 316K consensus.

Canadian retail sales rose 0.7% in June compared to the +0.6% expected. Excluding autos, sales fell 0.1% compared to the +0.4% expected. CAD handily underperformed the other commodity currencies. Despite the miss, the trajectory of sales in Q2 as it climbed at a 3.0% annualized rate.

Currency trading flowed alongside the broad risk trade but EUR/USD continues to be an exception. The disconnect is likely due to central bank and Chinese buying. On Tues, EUR struggled after pushing to 1.4499 but failing to break 1.45. Former Fed Chair Greenspan weighed on the euro as well as he pointed to the possibility of a breakup.

Asia-Pacific Preview

New Zealand is expected to show a NZD$99 million trade deficit in July after a $230m surplus the prior month. The past four reports have missed by more than $170 million and NZD will rise/fall approx 20 pips on a similar miss.

At 0130 GMT, the second quarter report on Australian construction work done is expected to show a 1.1% q/q rise after a 0.7% rise in Q1. This report is unlikely to drive AUD trades.


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