From Chris Mullen at Goldseek...
Before the markets opened in the US Friday morning the Federal Reserve took action, cutting the discount rate. This is the rate at which banks can borrow from the Fed, rather than from each other – and not the broader lending market Fed Funds – and it was cut from 6.25% to 5.75%. Institutions can also now borrow longer at 30 days instead of just overnight.
"Indiscriminate irrational illiquidity" is how Rick Santelli put it on CNBC to describe recent market actions, and the Fed’s action Friday certainly seemed to help put an end to that, as assets like gold and other commodities that were irrationally sold on Thursday rebounded.
Overall investors were happy to see that Bernanke and the Fed are watching the markets and are willing to act if necessary. There were however some very unhappy people who were short the market, what with it being options expiration day, and they were obviously hurt as the Fed’s action inspired the Dow to shoot over 300 points higher at the open.
Spot Gold Prices added over $10 to Friday's early gains in New York after the Fed’s announcement, paring into the close, but the Gold Market still closed higher by 1.28%. Silver followed a similar pattern and gained 2.89%.
The Euro Price of Gold roes above €486, platinum lost $2 to $1,225, palladium lost $4 to $327, and copper gained nearly 2 cents to about $3.19.
Gold and silver equities rose over 4% at the open before they halved their gains by about an hour into trade. They then held near that level for the rest of trade and closed with over 2% gains.
The Fed’s statement today said:
"Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward. In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably. The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."
On the data front, next week’s economic highlights include Leading Economic Indicators on Monday, Initial Jobless Claims on Thursday, and Durable Goods Orders and New Home Sales on Friday.
Oil rose as the Fed cut the discount rate and eased economic worries; a fire at a refinery raised production concerns; and Hurricane Dean strengthened while a new forecast called for it to go through the Yucatan peninsula and head to the Western Gulf where refinery operations and energy infrastructure is present and could be damaged.
The US Dollar index fell as the Fed stepped in, a step towards cutting the Fed Funds rate. That would certainly reduce the appeal of the Dollar as an investment relative to other world currencies and other assets in general, including Physical Gold Bullion.
US Treasury bonds fell as the Fed took action to calm the stock market. This also caused a steeper yield curve, meaning that long term rates rose more than short term rates.
The Dow, Nasdaq, and S&P rocketed higher at the open on short covering, but these impressive opening gains were roughly cut in half not long into trade and the three indices held at about that level with over 1% gains until the last hour of trade when they rose back near their early highs and closed with roughly 2% gains.
In the Gold Market, says Julian Phillips of GoldForecaster.com:
"The bullion price fell, not because of lacking investment, but because of problems with investors. The gold price then recovered because the Indian market loves a bargain.
"Looking around at all the wounded in so many markets across the globe, with more financial tsunamis to come for sure before the end of the year, one has to be impressed by the resilience of gold this week.
"We realize that the credit squeeze is not short-term, and we believe that today’s short-term move of dropping rates could easily become longer-term, as the unfortunate US consumer, the mainstay of the growth of the last few years, staggers with all this weight on him.
"For sure high levels of volatility are here to stay, with gold seemingly experiencing low volatility now."