Though the ugly bond auction got the headline, there’ s no doubt part of this afternoon’s reversal in many key stocks and commodities was partially caused by concern the G20 may turn into a fiasco as members use the occasion to beat the U.S. like drum over QE2. The Sydney Morning Herald writes,
China’s state media has issued a new broadside at the US Federal Reserve’s move to prime the US economy, suggesting the Group of 20 should monitor policy shifts by the US central bank.
The Xinhua news agency said in a commentary the Fed was “risking the global recovery by following its own track for economic revival” by spending an extra $US600 billion ($A593.65 billion) buying Treasury bonds to stimulate the US economy.
The comments were published just days ahead of two key summits this week – the G20 meeting in Seoul and the Asia-Pacific Economic Co-operation forum in Yokohama, Japan – that are expected to focus on rebalancing global trade.
“There is an urgent need for the G20 … to set up a new mechanism that effectively monitors the issuer of the international reserve currency, especially when it is not able to carry out responsible currency policies,” Xinhua said.
We picked up some GLD, the gold EFT, on the $40 reversal. Any conflict in the G20, continued sovereign debt worries in Europe, and a potential ugly 30-year auction should provide a bid to the metal, which was extremely overbought at today’s high. The strength of this bounce will be an important test as to whether gold has what it takes to hit our year-end $1,500 target price.