Shadow Of A Doubt
There was some hubbub early today when rumors swirled out of Jackson Hole that there had been some definitive word on tapering of QE3 beginning with the Fed FOMC meeting scheduled for next month.
That rumor fought hard against some inconvenient facts, the biggest of those being a decline in July durable goods orders of more than 7%. A roughly 4% decline had been forecast (which would have been right on the usual seasonal dip numbers).
The Jackson Hole Symposium is one of August's main events, although that's not saying much given the scarcity of action in the vacation month for the Western World. But, some central bankers, finance ministers, academics, and financial market participants gather from all over the globe to discuss the most important real economic issues (versus theories).
Conspicuous by his absence was Fed Chairman Ben Bernanke.
What was agreed upon was that QE3 is becoming too expensive to sustain, although what's a few billion dollars more or less at this point? To paraphrase the late Senator Everett Dirksen, "A trillion here, a trillion there and pretty soon you're talking about real money."
We have been saying all along that tapering is already built into the price of gold and silver and that is indicative of why tapering paranoia is no longer moving the precious markets all that much.
The compromise will be on the size of the taper, which could end up being gently lower than forecast in September then higher as more signs of economic recovery are felt.
Thus, the big question is: how much will the Fed reduce stimulus by? Forecasts are around 10 to 15% in the first tranche. That means that QE3 will continue at about $72 billion per month till the next trim. That's still a lot of clams. We're forecasting 5 to 10%. No one is anticipating a buzz cut.
Paradoxically, the equities markets rose on the bad durable goods report. Right now, everyone should be asking, "Whither the U.S. economy?"
"The durable goods orders number combined with Friday's surprise 13.4% drop in July new-home sales, might indicate that the economy is uneven and that the Fed may not have a clear path to taper," said Kevin Giddis, senior managing director and head of fixed income capital markets at Raymond James.
Some truly fundamental issues are beginning to fly onto the radar screen. We are looking at increasing volatility due to world and national events.
We are now hearing rumors of action in Syria, many Washington insiders simply waiting for President Obama to loose the dogs of war. Egypt's situation is far from resolved. The two countries are lynchpins of the central area of the Middle East.
Also, we are going to experience dysfunctional governance at its worst in September when Congress begins (again) to debate raising the debt ceiling. Of course, we know that the right wing will clamor for more budget cuts. However, as the decline in housing, durable goods and anemic job growth have clearly demonstrated, more spending cuts will hurt the American economy. Budget cutting is good strategy once an economy is very healthy.
Make no mistake, economic weakness will continue to factor in the FOMC decisions in mid-September. The Fed's monetary policy has become the proxy for fiscal policy because of a weak, stumbling legislative branch, which, to be fair, is getting little strong leadership from the President.
To get back on point, volatility is always good for gold and can buoy silver relatively robustly, unless there is so much confusion in the markets that industrial production of components that demand silver slumps.
Wishing you as always good trading,
Gary S. Wagner
The best way to describe recent market price moves in gold is sharp rallies followed by market consolidation. Market consolidation is just a fancy phrase for sideways action. The key is that we are witnessing sideways price action as opposed to a corrective period following a rally. This is a major factor in a strong run away market: it does not provide traders and investors with a dip to enter following a break out. With those technical factors and news of possible action in Syria, we might not see a market price dip. We did issue a trade recommendation today and today’s video will outline the details.
We issued a buy recommendation this morning:
Long Gold @ 1401.80 Stop below 1382
Long Silver @ 24.29 Stop below 22.90
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Gary S. Wagner - Executive Producer