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You say "potato," I say "patattah" Let’s call the whole thing off.
Yesterday’s announcement by Larry Summers in which he withdrew himself as a candidate as the next Federal Reserve chairman, sent the stock market higher in the precious metals lower. Mr. Summers who has been considered by many as one of the more hawkish nominees by withdrawing as a candidate signaled that current monetary policy would continue to be accommodating. A more factual statement would be that a more dovish chairman might delay or stretch out the onset of tapering of our monthly bond purchases.
Many analysts are under the assumption that this week’s FOMC meeting will contain some announcement and/or action that will begin the tapering process. Currently the Federal Reserve purchases roughly $85 billion per month. The belief the tapering could well begin with a $10 billion reduction of monthly purchases to 75 billion. What I find most interesting is that we had two very distinctly different reactions to the same underlying assumption. Whereas the equities markets considered the withdrawal of Larry Summers as a candidate to be effectively stretching out our current monetary policy and even possibly delay the onset of tapering, gold reacted quite lethargic to this news. As of 515 Eastern standard Time gold has effectively come off of it lows and is currently trading at 1314.60 off almost $15 on the day. With an intraday low of 1302.70, gold prices were able to hold a critical support level just above $1300 per ounce. If not for a weakening US dollar we could have very well seen gold dipped below $1300 in trading today. If you subtract the $4.25 gain caused by a weakening US dollar, the intraday low in gold would have fallen just below 1300. Although no one knows how the markets will unfold this week, any time you add in FOMC meeting to the mix you can expect an increase in volatility, and the possibility of a significant knee-jerk reaction as information from the current meeting is revealed. Wishing you as always good trading,
Gary S. Wagner - Executive ProducerMarket Forecast:On a technical basis the continued downside witnessed today in the precious metals markets is a significant statement, and has once again tested critical support in gold just above $1300 per ounce. There has been no indication other than support holding that we can expect any kind of rally in gold or silver as we approach the beginning of this month’s FOMC meeting. That being said our current strategy is to be sidelined with no open positions in either gold or silver. As information unfolds and the volatility increases it is best in my opinion to stay on the sidelines as we determine whether or not this recent decline in gold will continue, or if gold can find support at $1300 per ounce.
Proper Action :
We remain on the sidelines. After witnessing last weeks melt down in gold and silver prices, today's continuation of down side pressure has once again tested critical support at $1300 per ounce. We will remain sidelined until we get technical confirmation of effective support
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Gary S. Wagner - Executive Producer