House Of Mirrors Market

Of course gold is trading choppy and sideways as the yellow precious metal seeks new direction.

That direction is particularly hard to come by since extracurricular talk by various Fed members has been contradictory.

Narayana Kocherlakota, the president of the Minneapolis Fed, a voting member on the FOMC, said that there is nothing to be concerned about regarding inflation. "There is still significant underutilization of our country's most important resource - its people," he said. June's 6.1% unemployment rate "could well overstate the degree of improvement in the U.S. labor market," he added. Giving a peek into its philosophy, he also claims the Fed is undershooting its price stability objective and underperforming its maximum employment objective.

Of course, if what he says is true, underemployment is one of the chief culprits when it comes to low inflation. (A worry for precious metals bulls.)

But hold onto your horses just a darned minute.

Jeffrey Lacker, president of the Richmond Fed, not a voting member on the FOMC this session, said the Fed is concerned about inflation and he thinks the central bank will act preemptively, although he referred today to "next year" as a target.

As we've said, lurking in the back of all Fed members' minds is the question of what effect the tapering and subsequent unwinding of the massive $4 trillion from QE3 will have. If it looks like more stormy weather, those rock-bottom rates could be around for a decade.

Bobbing just offshore is some gathering sentiment that the equities markets are ready to experience a serious correction of 10 to 12%.

Why this would happen except on generic fear is anyone's guess. It seems a rather severe prediction to us, although 4% to 6% is not out of the question. Earnings seem too strong to us, although the last quarter is being reported this week and next and some questions will arise.

But, a thought... those 288,000 jobs added in June don't seem to portend anything terribly damaging. Perhaps the stock investment warriors are worried they've overpriced the equities markets?

Regardless of the reason, gold and silver can benefit from stock turbulence, as they can from a sudden and unexpected spike in inflation.
 
As always, wishing you good trading,