Commodity Markets Update - All Eyes on the Feds Interest Rate Decision

By: Gold_Investments

Gold
Spot gold was trading at $720.00/720.50 an ounce as of 1215 GMT. It traded sideways in Asia and has continued to rally in Europe after yesterday's nearly 1% increase.

While UK and most European and international markets have stabilised somewhat this morning it seems likely that any bounce in equity markets will be another dead cat bounce.

All eyes are on the Fed and Bernanke's first major challenge and the market awaits his important decision at 14:15 EST. There is increasing consensus among economists that Bernanke will reduce by 25 basis points. Economists polled by Bloomberg expecting a 25bp cut has jumped to 78 percent from 69 percent, while only 18 percent expect a 50bp cut, down from 21 percent last week. However, the market itself has a different outlook and suggests there may be a 50bp cut. Fed fund futures are this morning pricing in a 54 percent chance of a 50bp cut against a 46 percent chance of a 25bp cut.

A rate cut of 25 or 50 basis points will likely to lead to another short term rally in stocks. A larger rally on a larger cut. However, further retrenchment due to the credit crisis and slowing U.S. economy is likely in the medium term.

Upcoming results from U.S. banks will also be important and there are fears of some negative surprises to the downside. Four major U.S. investment banks will disclose the extent of their exposure to the unfolding credit crisis. Bear Sterns, Lehman Brothers, Morgan Stanley and Goldman Sachs all report and should give an indication as to how the credit crisis may unfold.

Safe haven buying on Northern Rock's "run on the bank" and the continuing, developing and deteriorating global financial credit crisis may be leading to a flight to the quality of gold. Alan Greenspan's very bearish pronouncements and warnings regarding U.S. deficits, challenges regarding inflation and the need for sharply higher interest rates globally and his belief that U.S. and particularly the UK housing markets will continue to fall is most certainly not helping matters.

We have had direct experience of safe haven buying with a number of Northern Rock customers having bought bullion from us since Friday.

It is important to realise that gold's strength is not simply a function of USD weakness. This is evident in the performance of gold in GBP and EUR in this quarter.

So far this quarter gold has rallied 10.8% in USD, from $648 to $718 USD.
So far this quarter gold has rallied 11.4% in GBP, from £323 GBP to £359.80 GBP.
So far this quarter gold has rallied 7.9% in EUR, from €479 EUR to €517 EUR.

Silver
Spot silver is trading at $12.90/12.92 an ounce and has rallied sharply (1215 GMT).
All of the fundamental reasons for silver's rally in recent years remain in place and silver, while technically damaged from the recent sharp sell off, remains historically undervalued and will likely catch up with gold in the coming months and also reach new multi year highs above $15.
Silver – Probably the most undervalued Asset Class - http://www.finfacts.com/irelandbusinessnews/publish/article_10009952.shtml

PGMs
Platinum was trading at $1300/1306 (1215 GMT).
Spot palladium was trading at $330/335 an ounce (1215 GMT).

Oil
Oil rose above $81 overnight with fears that global demand is continuing to outpace global supplies.

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