Bullard's Loose Lip

Yesterday we laid out a number of events or releases of news that we thought could move gold. Well, lo and behold, we got one today. We said yesterday, "A good or bad word from a maverick member of the Fed..." might be one of those forces.

Today, James Bullard, President of the St. Louis Fed, said that rates could increase earlier than widely expected. He's claiming it could be as early as the first part of 2015.

Of course, that Bullard would have even a meager effect is a measure of just how insecure gold bulls are regarding the current pricing levels. Bullard is not serving on the FOMC, which sets policy, this year or in 2015. He is a mouth that roared, and needlessly.

A longer term threat to gold is the overall normalization of monetary policy - to wit, the tapering of QE3. But, if you look at how the price has reacted since tapering began, we're not sure the experts are correct when they give that knee-jerk reaction.

Higher gold prices have undeniably caused a pullback in physical demand, the hard purchasers betting that the price will fall.

At this moment, gold has recovered much of today's loss that came on the heels of another poor U.S. economic data report.

The Commerce Department said spending edged up by 0.2% in May after coming in unchanged in April, while economists had predicted that spending to increase by 0.4%.

The report also showed that real spending, which is adjusted to remove price changes, dipped by 0.1% in May following a 0.2% drop in April. More people are earning more money in the U.S. but they are keeping their purses and wallets zipped.

To understand that we have to look more closely at real inflation levels. While prices may be going up, wary consumers may simply be saying, "No no."

Silver, going on its own merits, not only dug out of today's morning hole, but is actually up about 0.4% for the day.

If you have doubted our insistent critique of China's "official" economic data, you need look no further than the unfolding scandal in which actual same physical gold there was used as collateral for loans multiple times. If you think western economies are built like a house of cards, wait till the big wind blows across the Chinese economic landscape.

As always, wishing you good trading,