Written by Sumit Roy  |

September 21, 2011

Morning Call: Gold ($1800), Oil Steady Ahead Of Fed Decision; BoE Contemplates QE2

Details

All eyes are on the Federal Reserve this morning, which is expected to take new action to revive the ailing U.S. economy.

IN TODAY'S HEADLINES ...

• Financial markets are quiet ahead of a highly anticipated Federal Open Market Committee meeting in which the central bank is expected to announce "Operation Twist." Such a program would involve replacing short-term Treasurys in the Federal Reserve's $1.65 trillion portfolio with longer-term Treasurys. Markets may move significantly if the FOMC takes either more or less action than currently anticipated. A third quantitative easing program (QE3) is not expected to be announced at this meeting (though there is always the potential for a surprise).
  
  While the Federal Reserve may hold off on announcing a new quantitative easing program, minutes from the Bank of England's September meeting indicate that the U.K. central bank may initiate its second round soon. The BOE spent 200 billion pounds over 2009 and 2010 buying government bonds. If a new program is initiated, analysts suspect it could total somewhere close to 50 billion pounds.
  BoE set to pump more money into UK economy
  
  
• Precious metals are little changed as traders await the FOMC decision. As we wrote in our latest Precious Metals Monitor, "Operation Twist" likely won't lift prices significantly because it doesn't change the size of the Fed's balance sheet and it is already expected. But if the FOMC surprises with stronger action than expected — such as QE3 — prices would likely surge.
  
  Gold was last trading lower by $3.36, or 0.19 percent, to $1800.26/oz. Silver rose by $0.18, or 0.45 percent, to $39.97, and platinum added $3.63, or 0.2 percent, to $1781.13.
  Bullion Vaults Running Out of Space as Gold Rally Accelerates
  
  
• Crude oil is mixed ahead of the Energy Information Administration's Weekly Petroleum Status Report. On Tuesday, the less-authoritative report from the API showed a 2.6 mmbbl increase in crude oil inventories; a 0.1 mmbbl increase in gasoline inventories; and a 0.1 mmbbl increase in distillate inventories.
  
  Brent was last trading up by $0.10, or 0.09 percent, to $110.64/bbl, while WTI fell $0.74, or 0.85 percent, to $86.15.
  Oil Declines in New York After Report of Higher U.S. Crude Inventories
  
  
• Grains are ticking higher, rebounding from the multiweek lows hit in recent sessions. Corn was last trading up by $0.04, or 0.58 percent, to $6.94/bushel; soybeans added $0.04, or 0.26 percent, to $13.42; and wheat advanced $0.01, or 0.11 percent, to $6.76.
  
  "Given the heavy selloff we've seen over the past week, you've got to start thinking that prices are looking a little oversold at the moment and could potentially be susceptible to a rebound," said Victor Thianpiriya, an agricultural commodity analyst at Australia & New Zealand Banking Group. "Crop conditions haven't been good either so that's also price-supportive."
  Wheat Climbs for Second Day as Adverse U.S. Weather May Reduce Crop Yields
  
  
• Copper rebounded from the lowest level since Nov. 30, 2010. Prices were last trading up 0.5 percent to $8353/mt on the London Metal Exchange, but the trend clearly remains lower.
  
  "The economy is still the general concern and the negative sentiment remains but China is restocking," said Jonathan Barratt, managing director for Commodity Broking Services.
  London copper rises from 9-month low
  
  What to Watch For:
  
  10:00 a.m. EDT: U.S. Existing Home Sales (August)
  
  10:30 a.m. EDT: Weekly Petroleum Status Report
  
  2:15 p.m. EDT: FOMC Monetary Policy Decision