Now It's "Waiting For Yellen"

Now It's "Waiting For Yellen"

The obvious news is that gold and silver traders are waiting for new Fed chairman Janet Yellen to give her testimony in front of the House Financial Services Committee on Tuesday. There are also questions the U.S. Senate wants to ask her. This will be Yellen's first appearance in front of the U.S. lower house since taking over from long-running Ben Bernanke.

It is believed she will stay the course, keeping close to the path that Bernake's Fed (with Yellen as Vice Chair) laid out. However, in some way she will put her mark on the Fed. It's only human nature. One has to wonder if there will be another type of stimulation or if she will simply reaffirm the Fed's dedication to low interest rates.

If Yellen is excessively exuberant on the prospect for the U.S. economy - that is, more exuberant than the Fed has been of late - the dollar might pick up a few percentage points and that would make precious metals decline. We are assuming she will be muted. The economy is still showing weak spots.

"Nervousness among investors is there before the testimony, but they are prepared for every move," said Chintan Karnani, chief analyst at Insignia Consultants. "Looking at the gold-price movement, it seems investors are ready to short on gold" Tuesday if Yellen is upbeat on the growth of the U.S. economy, he said. 

But there are countervailing forces at work, regardless of the nature of Yellen's testimony. 

Buying in China has picked up with a vengeance since the end of the Lunar New Year holiday. This may be due to a reassessment of gold prices as they drifted down closer to the 1200 mark or it may be that traders are showing a lack of faith in continued boom growth in the Chinese economy.

Additionally, there are more and more rumors that India will loosen its tariff stranglehold on gold imports. This may be wishful thinking on the part of gold bugs in India.

What we have been wondering for a long time, though, is why the Indian government hasn't turned to quotas, or to a graduated tariff that would raise the tax as gold (possibly) goes higher in price. It seems as if the problem they are trying to solve - namely to create a dike to stem the flow of money out of India in local currency that exacerbates the country's balance of payments problem - could be treated with less bitter medicine than an across-the-board import tax. 

Indians feel very emotional about their gold holdings and gold's connection to various celebratory events in Indian culture. Treating the populace like a bunch of naughty school children cannot have won many points with the electorate. A graduated approach is always more welcome than extreme measures. 

Just for the record, we are about 5 weeks away from the next FOMC meeting and, while economic news will be sparse for a while, there will be plenty of news to persuade everyone to reconnoiter before that meeting takes place.