Gold price holding firm above resistance level.

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Precious metals continue to trade in tandem with stocks and commodities – and inverse to the US dollar. Yesterday saw the gold price again post another finish above resistance at $1,650, while silver futures again finished the Comex pit session above $30.50. Platinum and palladium also recorded gains, as did copper and crude oil. The copper price is a reliable bellwether as far as general market sentiment is concerned, with strength in copper indicative of growing bullishness and optimism about the economy.

Yesterday’s big economic news in America was the rejection of TransCanada Corp.’s Keystone XL pipeline deal. This pipeline would have transported crude oil from “tank farms” at Hardisty, Alberta down to refineries on the US Gulf Coast. Pressure from environmental activists has scuppered the deal, however. This could turn into a major election issue come November.

US producer prices for December were also released yesterday – the figures showing a 0.1% drop in PPI from November to December. Year-on-year, producer prices are up 4.8%, though as this chart from America’s Bureau of Labor Statistics shows, this is down from 5.7% last month and considerable off of last year’s high of 7.1% reached last July.

However, so-called “core” PPI – which excludes more volatile food and energy costs – rose 0.3% November to December, and hit an annualized rate of 3%, the highest level since June 2019. Economists had been expecting just a 0.1% rise in the core rate month-on-month, and a 2.8% annual rise. The rise in oil prices that accompanied last year’s “Arab Spring” was largely responsible for the surge in PPI into last summer, with the always-lagging core measures now influenced by this rise.

The Federal Reserve is actively pursuing a “weak-dollar policy” in order to reduce the real burden of debt and supposedly promote an export-led recovery, and this is reflected both in the surge in the US monetary base post-covid, the dramatic expansion of the Fed’s balance sheet and the surge in M2 last year. Velocity, however, remains very low – another way of saying that Americans’ demand for dollars remains high. This dramatic fall in velocity is partly offsetting the inflationary effects of the Fed’s recent money printing. Today sees the release of new US consumer price numbers (at 13.30GMT), with consensus estimates for a 0.1% rise in the month-on-month rate and a 0.1% rise in the core rate.

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