After being sold heavily since November Gold might finally be in place for a wave of buying. In our last review on Gold we proclaimed that for long term bets on the metal it is best to wait for the tightening threat to pass. Well what has changed? In the Last two weeks two important occasions occurred the Fed announced a hike in the discount rate for banks and China raised it reserve ratio for banks.

The equity markets were able to build up momentum last week, allowing the S&P 500 Index to rally 33 points or 3.3% for the week.  The commodity market also joined the party, as the dollar traded mixed due to global uncertainty.

The week started off on a positive note for riskier assets due to positive news out of Japan.  The gloom is lifting slightly from the Japanese economy, as sharp growth from China and other Asian neighbors is lifting exports and spurring more capital spending by the nation’s manufacturers.  The Japanese economy grew at a faster pace than expected, expanding at a rate of 4.6% for the three months ended Dec. 31.  The economic figures also showed that the slight increase in domestic demand also helped lift Japan out of its worst recession. Private consumer spending, which accounted for about 58% of real gross domestic product, rose 0.7%, supported by government measures to encourage purchases of energy-efficient electrical appliances and cars. That was the third straight quarter of gains. The GDP deflator-an indicator that gives a broad reading of price trends-worsened to a record low of a 3% decline in October-December from the previous year, compared with a 0.6% decrease in the previous quarter. A fall in domestic prices pushed down the deflator, showing that the gap between supply and demand is still increasing.

The Federal reserve surprised the market by raising its discount lending rate to banks from 0.5% to 0.75% thus effectively raising the spread on Fed funding to 0.5%(Discount rate less Benchmark rate).The Fed chairman already announced in his statement earlier this week that the Fed will move very soon to tighten the discount rate as part of a grander scheme to move out of emergency measures and in to normalization. However markets have not been expecting the move to be so quick and were caught by surprise. Although the Fed in its decision went out of its way to outline this is only a move towards normalization rather than a tightening move investors thought differently.

President Obama took the stand yesterday, commenting on his recent stimulus package. Already a year has passed since the President began to inject funds into the financial system to reduce the recession’s impact. According to his statement, even though unemployment is at high levels, the stimulus helped to prevent over 2 million job losses. President Obama claimed that the stimulus plan is on target to create or save a total of 3.5 million jobs.