Video-June-03-2013-Archives-Daily-Show
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A Trillion Here, A Trillion There
With a mighty assist from a falling dollar, gold and silver pushed higher today. Gold closed up $23, silver up 46 cents (over 2%).
The weaker dollar is not the only factor at work. It has become clear to analysts that the Fed is unlikely to alter course in the next few FOMC sessions. QE3 will continue. This has been clear to us for some time. It has only been the speculative impulse of traders that has hammered down gold and silver prices. MAcro trends are against the bears.
As we also have been noting, there is a heavy strain of volatility in the world economy. The major players - the U.S., Europe, China and Japan - are in the midst of a sort of Whack-A-Mole game. One week, news is positive from one region while another region goes down. The positive news switches from place to place. The negative news does likewise.
Precious metals traders have begun to not merely note this, but act upon it. Bloomberg reported on this phenomenon:
"Speculators raised their net-long position by 35 percent to 48,096 futures and options by May 28, the biggest gain since March 19, U.S. Commodity Futures Trading Commission data show. Most of the gain came from a drop in short bets, which reached a record a week earlier."
Within the second of those two sentences is an indication of just how volatile markets are.
Moreover, the extension - indefinitely? - of QE3 and rock bottom interest rates may portend something larger and more important for precious traders.
"Gold continues to be useful as an insurance policy in people's portfolios to guard against uncertainty and possibly some economic dislocation," said Michael Cuggino, who manages about $14 billion of assets at Permanent Portfolio Family of Funds Inc. in San francisco. "You have a lot of monetary creation going on, and while inflation is not a current threat, that doesn't mean it's not a threat at some point."
We have discussed a number of times before that we have been going through a narrow defile with safe haven appeal on one side and inflation hedge appeal on the other. We are hoping these two walls of the pass we are traversing will first coincide and then inflation will take over and govern gold as it has traditionally.
When working out the inflation equations, we must be sure to take into account Japan's version of QE, which is running at almost $70 billion per month, an enormous shove by an economy that is less than half the size of the U.S. economy. U.S. QE3 runs at $85 billion per month. If Europe would do something remotely commensurate with its status as a huge world player, we might see the global economy soar, and inflation pick up significantly. We must have more inflation to grow out of the Great Recession. A rate of 1.2 to 1.4% simply won't do it.
The Federal Advisory Council - a group of bankers nationwide that gives the Fed strategic input on conditions and needs of the American economy - released minutes from its May 17th meeting. In essence the minutes said "it is likely that current policy accommodation will continue for one to three years."
The panel firmly stated that the record Fed stimulus may now be "perceived as integral" to the housing finance system. Home prices have been rising, and as Millennial generation members reach prime-home-buying age in the next 3 to 10 years, those prices should rise quickly. That is one of the roots of the 3-year outside limits on QE3.
Another big number due out this week, on Wednesday, is the release of the Fed's nationwide Beige Book, which reports on each individual region and economic sector.
The Fed is now holding $3.4 trillion (with a T) on its balance sheet.
Wishing you as always good trading,
Gary S. Wagner - Executive ProducerMarket Forecast:On a technical basis today’s $20 plus move in gold is significant. Over the last three trading days they have all been characterized by double-digit up, or double digit down days. The fact that today’s $20 move has moved gold prices back above $1400 lens technical evidence to the fact that $1400 per ounce should become a supportive price point in gold. A weaker US dollar is cited as a major factor in today’s higher prices.However the higher pricing in gold is only partially due to a weak US dollar. When looking at the Kitco gold index of the $23 gained today roughly half of that is due to a weaker dollar, and accounted for $10.55 in price gains. The other $12.35 of gains is due directly to buying entering in the market. That being said we are looking to position ourselves from the long side in both gold and silver. It is simply a point of executing the trade at the best possible price. Stops will need to be below 1385 to allow for intraday volatility. Resistance is earmarked currently at 1412, 1420 and then at 1450. Major resistance is still at 1472 1480 per ounce. Although I believe that higher prices will be followed by yet another test of the lows I think we could see gold prices rally over the next 30 to 45 days.
Video archives:http://thegoldforecast.com/video/april-2013-archives-daily-shows http://thegoldforecast.com/video/may-2013-archives-daily-shows
Market Sentiment: Price support in gold seems to be at 1385 to 1400. If this support holds look for higher prices ahead with our target listed above in the market forecast.
From the week of 05.31. 2013 COT LINK See previous weeks in Historical Commitments of Traders Reports. |
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Gary S. Wagner - Executive Producer