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Gold traders are in a holding pattern.

The scenarios that might develop after the minutes of the FOMC meeting are released tomorrow are firming up. Of course, given the natures of media and the financial community, these scenarios are seen strictly in binary terms. If X happens, then Y will ensue. If A happens, B will ensue.

The problem lies with X and A, not the weak forecasting that follows them (Y,B). So scenario X has definitive tapering beginning, albeit slowly, while scenario A says no tapering will occur until December's meeting or beyond. (Will the unwinding of Fed positions be left to Ben Bernanke's successor?)

One scenario that has not been sketched out is this: a little tapering will occur and interest rates will be moved down to zero.   

One very serious pulse that is moving through the American economy is the simple fact that money is not moving through the pipeline to Joe and Jane Main Street. Now that mortgage rates have moved up, everyone on one side of the dividing line is trapped and can't buy a home. Think of it this way:  

Very credit-worthy buyers or buyers with massive incomes who want super-jumbo mortgages have already been scoured out of the loan biz. They already got their loan, or, given their power incomes, can get another and another and another.  So well-heeled buyers and sellers keep trading houses with each other.  

Those who ended up on the wrong side of the mortgage divide are going to be stymied for a long time. Take a hypothetical $2000 mortgage payment that was landed in 2011. That mortgage today - between higher home prices and higher mortgage rates and the levying of "points" to close on a house, could add $300 extra per month. And the people left in the mortgage-seeking pool are just those who can't afford another $300 (or whatever) per month. Moreover, the banks might see them as credit worth at $2000 per month but not when they start bumping up against $2500. And by now, we all know that wages are stagnant, so those hypothetical buyers can't earn their way across the great divide all that easily.  

The net effect on the housing market is easy to figure out. The effect on young people and minorities is also clear.  

Inflation in August barely registered a heartbeat, up 0.1%. That's a millimeter away from deflation. Yet, there are analysts who are arguing that the Fed ought to taper because rents in major cities have gone up. Well, tapering is bound to force mortgage and other lending rates higher, so the argument against that kind of prognosticator is easy to make.    

Some analysts said gold prices will rally if the Fed decides not to begin tapering this month, or announces a reduction in bond buying that is less than the market expects.  

"If the Fed turns out to be anything other than what traders have been expecting on tapering, we are going to see much higher gold prices," said Miguel Perez-Santalla, vice president at BullionVault.   

U.S. economic weakness, such as disappointing non-farm payrolls data this month, have made many investors forecast that the Fed might postpone cutting monetary stimulus. "The market is confused by the fact that the Fed will start reducing its stimulus but will still be dovish because the underlying growth is not strong enough and interest rates could be maintained low until 2016," BofA Merrill Lynch analyst Michael Widmer said.   

The foolish government of India today announced that it was doubling the import duty on finished gold jewelery to 15%. This is a perfect case of a government engaged in profligate spending, high levels of corruption and a complete denigration of a three-thousand-year-old peoples' tradition.  

It's a good year to be a gold smuggler in India.  

Wishing you as always good trading,