Taking The Bait

Yesterday and today there was a lot of nibbling around the edges in gold and silver.

Investors and traders are waiting for the outcome of the FOMC meeting, which will be issued tomorrow. Regardless of speculation one way or another concerning interest rate increases, why would gold be affected?

Recently, low interest rates have had no affect on gold. Tapering, which actually gave gold a boost late last year until the past couple of weeks, has also lost its potency. We are near the end of the line for QE3.

A bigger question is whether something new and different will be taken out of the toolbox to combat a persistently slowish recovery. We wouldn't rule it out. Some sort of push has to be made with banks and corporations to spend the money they have in reserve. Without an opening of the vaults, why would the U.S. and other developed economies see a true growth surge? Maybe the discipline of economics is still far from a science, but it's far from voodoo, as well.

In a huge economy like the U.S., things simply don't happen by accident. Conditions change because of freer capital flow; revolutionary technological change; mammoth infrastructure improvement, and so forth. The biggest swing and miss so far in the recovery has been wrapped up in poor employment numbers and stagnant wages.

Many pundits yammer on about the consequences of income disparity. Most of it is enmeshed in vague notions of meritocracy, frugality and simple brains. But, if viewed in the context of simple practicality, income disparity hurts consumer purchasing power, especially on the lower levels, but it does effect even the upper middle class. In an economy that is 70% consumer-driven, less money in paychecks means less money spent on consumer goods of every type.

One has to wonder what would have happened if of all those trillions that were booted around since 2009, $600 billion had gone to the population at large. That would have been $2000 for each of the 300 million citizens in the U.S. It could have gone in the form of tax credits for durable goods - cars, washing machines, computers, etc. Instead, we have $6 trillion dollars parked in banks not being lent and another $8 trillion in corporate accounts.

We're predicting the Fed will look to stay their course once again on interest rates. The slack in labor markets and the snail's pace with which wages are growing will drive the thinking. And, what can they say about inflation? Maybe "Come out, come out, wherever you are."

The trouble for precious metals bulls is that so little is happening even with low Fed rates.

Almost all of today's minor gains in gold and silver are due to dollar strength. Look for that to disappear once the FOMC issues its news release covering the September meetings.

Somebody better come up with a plan.

As always, wishing you good trading,