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Tapering Is In The Eye Of The Beholder
"It does appear the markets are continuing to expect tapering," said James Camp, managing director of fixed income in St. Pete's, Florida, at Eagle Asset Management Inc., which oversees $27.8 billion. "The Fed wants out of QE. In the near-term we see a 3 percent handle [on the 10 year T-note]."
Why the markets would expect anything different from what they already know is a bit of a mystery to us. Trading was choppy in the stifled afternoon session in New York as some FOMC policymakers thought last month that it would soon be time to slow the pace of QE3 bond buying "somewhat" but others on the Committee urged patience.
The minutes said, in part:
"Almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June post meeting press conference and in the July monetary policy testimony. Under that outlook, if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year."
Gold prices jumped around after the Fed minutes, responding intimately to movements in U.S. equities. A rise in U.S. Treasury yields - a proxy for interest rates - appears to have weighed down precious metals (and equities) across the board.
"The Fed minutes didn't disclose any information about the anticipated tapering. Gold was initially helped by short covering but its rally faded with the bond yields rising," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
As the Wall Street Journal put the situation:
"Fed policy makers remained divided about the timing of the first reduction in bond purchases, with "a few" voting to move soon and "a few" urging more caution. The Federal Open Market Committee also described recent economic data as "mixed," leaving gold traders to wonder about the likely timing of the first reduction in the Fed's monthly bond purchases."
We are all left to believe what we want to believe.
"It's kind of a confusing announcement. The market isn't taking it in either direction at all," said Bob Haberkorn, a senior commodities broker with RJO Futures.
About 2/3rds of the weakness in gold is due to the strengthening of the U.S. dollar. For silver, dollar strength is accounting for 11 cents out of the 12 cents that silver has fallen.
Our overall take is that traders, fearing the unknown have, for the moment, acted conservatively over on the currency side, buying the dollar on anticipated strength of the U.S. economy and rise in bank interest rates.
Wishing you as always good trading,
Gary S. Wagner Executive ProducerMarket Forecast:How do you spell volatility: FOMC! Today we witnessed yet another knee-jerk reaction to the most recent minutes which were released and made available at 2 PM (EST). Following the release of the FOMC minutes we saw the market moved quickly from unchanged to an intraday low of 1362. These lows were to be short-lived as the market rallied following the selloff to an intraday high of 1380. As gold prices begin to settle for the day it seems as though they will close moderately lower on the day. As you know following the release of the FOMC minutes we quickly sent out a trade alert, which recommended covering long positions in both gold and silver should gold break below 1360. At this point in time the market is trading well above that point. As you will see in today’s video is 1357 which I believe is a fairly critical support level. Should the market trade above that point my recommendation is to maintain our current long positions. However should the market trade under pressure, and gold prices begin to move below 1360, your best action might be to pull profits on our current long position.
Proper Action: We trailed stops higher last Thursday, maintain current stops
Long Gold @ 1313 Stop Below 1350 Long Silver @ 20.48 Stop Below 2200 .
Gold COT
Silver COT
COT LINK See previous weeks in Historical Commitments of Traders Reports.
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Gary S. Wagner - Executive Producer