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FOMC And Fragile Chine
Today's release of the minutes of the FOMC meeting leaves us again with a cup half full, cup half empty scenario. Not quite half of FOMC members want tapering to begin by the end of the year but those who do so are awaiting further economic data.
Peter Buchanan, analyst at CIBC World Market, said there weren't any surprises. "The committee also discussed the need to differentiate between the tapering of QE and actual rates hikes, once again emphasizing that there will likely be a considerable time between the end of QE and the first increase in target yields," he said.
Gold rose as much as 1 percent after the release of the minutes, suggesting that it might not be as sure a bet that the US central bank will scale back its asset buying any time soon. It ended the day up about 1/2 of a percent, extending its gain to a third day, after the policy meeting minutes showed many officials want more reassurance the job market is on solid ground before withdrawing economic stimulus. (And miles to go before I sleep.)
"As gold is reacting positively after the Fed minutes, it's evident that QE is going to extend for a considerable period of time," said Jeffrey Sica, chief investment officer of Sica Wealth, which has over $1 billion assets under management.
Possibly of more interest to precious traders was Fed Chairman Bernanke's comments this afternoon. He seemed to particularly stress that rates would not go higher in the foreseeable future.
"There will not be an automatic increase in interest rates when unemployment hits 6.5%," Bernanke said in the Q & A session of a speech to leading economists in Boston. He indicated that, given the weakness of the labor market, and low inflation "it may be well sometime after we hit 6.5% before rates reach any significant level."
Bernanke spoke out forcefully about his decision to lay out a possible timetable for winding down asset purchases after the Fed's last meeting.
"Notwithstanding some volatility that we've seen in the last six weeks, speaking now and explaining what we are doing might have avoided a much more difficult situation," he said. (Meaning later, if the news came all in one fell swoop.)
China seems to be running out of steam, this in light of its sputtering export market, rising consumer prices and its inability to allow market forces to do their work. Exports last month were down over 3% and imports were down 0.7%. Both figures are far, far below the expectations of forecasters who thought the numbers would be plus 4% and plus 8% for exports and imports, respectively.
Consensus is that the cash crunch orchestrated by Chinese bankers; flat demand from the U.S. and especially Europe; a rise in the value of the renminbi; and slack domestic demand overall are driving the slowdown.
We would attribute it more to rising wages, less competitiveness in the world marketplace, along with the resurgence of U.S. and western European manufacturing. Strength in Brazil and Turkey's manufacturing sectors have hurt China as well.
One more factor is at play. There is something called "Second World Syndrome." A developing economy may grow 10 or 12% for a given number of years because when growth started it had nowhere to go but up. As it climbs out of Third World status, growth slows, and then it really slows as an economy gets closer to First World standing. It is practically a law of nature unless some extraordinary event occurs. (Post-World War II U.S. economic dominance is such an event.)
One way or another, China's predicaments do not help inflationary trends from the perspective of a gold bull.
Wishing you as always good trading,
Gary S. WagnerExecutive ProducerMarket Forecast:Today upon the release of the most recent FOMC minutes we saw gold attempt for a second time today to take out our current minor support level at 1267. Gold prices were able to trade as high as 1266 before backing off of those highs, this as of 3 o’clock Eastern standard Time. Today’s video will look to identify support and resistance levels. More importantly we will detail, refine and define our current Elliott wave count which still has two distinct possibilities. As long as recent lows in gold prices remain above 1185 to 1203, which is a 61% retracement from 735 to over 1900, this 61% correction still falls within the guidelines of an ABC correction in terms of price low. More to follow later today.
Video archives:http://thegoldforecast.com/video/april-2013-archives-daily-shows http://thegoldforecast.com/video/may-2013-archives-daily-shows
Proper Action: gold prices continue to be range bound 1185 - 1203 Support 1265 Resistence -No current position
COT LINK See previous weeks in Historical Commitments of Traders Reports. |
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Gary S. Wagner - Executive Producer