And This Time We Mean It (Really)
As many parents are fond of saying: "How many times do I have to tell you?"
It seems the Fed's moderating tone, which was missed by many analysts on the first pass, promised longer-term low interest rates, which makes sense on many levels.
First, the European Central Bank is keeping rates as low as possible - zero or below - because that body does not have the same flexibility when it comes to quantitative easing as does the Fed, given its federative nature. So, the U.S can't let its interest rates come too far out of alignment with Europe's.
Second, as the Fed unwinds QE3 - the bond and mortgage buyback - it has to have a hedge against a potential torpedo hit from that action. The defense against the torpedo is low interest rates.
Until today, though, low interest rates seemed only to serve the equities markets, but, because low interest rates are seen as an inflation accelerant, gold and silver are holding new attractions for investment.
Rumor has it that there was one very large single-investor buy-in today, but we haven''t confirmed it. That makes some sense, though, given the way the price of gold screamed higher early this afternoon.
Apparently 85 tons of gold changed hands in three big trades. And trading volume was up across all forms of gold trading: physical, spot and futures.
There is continued concern about the situation in Iraq, although its effect is already baked into the price. The situation in Ukraine is still on a simmer, inarguably present but not an enormous factor.
We think that after many false starts and misapprehensions, precious traders finally believed the Fed's comments on interest rate stability.
Janet Yellen might as well stand up and shout, "I told you so!"
As always, wishing you good trading,
Gary S. Wagner - Executive Producer