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Unsteady As She Goes
Gold folded to 1318 this morning, clambered up to 1330 then fell again to the 1322 range as analysts and traders tried to make sense of what went on at last week's FOMC meeting and what will go one when the Fed meets again in October and then December. (We have one piece of advice for the Fed: don't meet so often.)
You could have bet the ranch last week that no matter which way the Fed voted, increased volatility was going to be introduced into the precious markets. Today's trading in gold and silver bears that idea out, although gold was on a bit more of a roller coaster ride, whereas silver glided up and glided down in a shallow parabola.
"After last week's move a lot of people are confused on how the market is going and are trying to avoid big positioning ahead of next week's non-farm payrolls," said Afshin Nabavi head of trading at MKS, SA said.
Adding more volatility to the mix is the small amount of cash entering the market because so many traders are sitting on the sidelines. This tends to exaggerate the effects of trades whether long or short. That is one explanation for today's swings.
Another reason for the uncertainty was a statement by dovish Federal Reserve Bank of New York President William Dudley. Inexplicably, the precious markets cast Dudley's comments as being bearish for us, when, in fact nothing could be further from the truth. It's downright insane.
Dudley said the Fed still needs to push hard against threats to the U.S. economic recovery, and fiscal uncertainties in particular "loom very large right now." Can it be any clearer?
On top of this, another Fed member seemed to go even further.
U.S. labor productivity has slipped and the trend in monthly new job creation appears to have slowed, Atlanta Fed president Dennis Lockhart said today, giving warning that this was a call to action to reverse a nagging trend.
"Is America losing its economic mojo? There is some evidence to the affirmative," Lockhart lectured a conference on creative leadership.
Although we cited it only last Thursday, it bears repeating that the news release from last week's FOMC meeting said this, among other things.
"The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. Asset purchases are not on a preset course..."
The downward revision for gold prices by Citi and Morgan Stanley also weighed on the market today.
For reasons we're not quite sure of - cynicism, a cry-wolf syndrome - the threatened shutdown of the Federal government by Republicans seems not to be factoring into the precious markets, which should eventually see such potential action as a cause to seek a safe haven.
"Now everything's a little upside down As a matter of fact the wheels have stopped. What's good is bad, what's bad is good, You'll find out when you reach the top You're on the bottom... - Bob Dylan, "Idiot Wind"
Wishing you as always good trading,
Gary S. Wagner - Executive ProducerMarket Forecast:After the roller coaster ride experienced in the precious metals markets last week, a day to regroup is not a terrible thing. However, today’s modestly lower pricing I believe has more to do with an absence of new fundamental data to give insight into any upcoming move in the precious metals markets.
Any bullish medium or long term sentiment which began when gold rallied off of the 1181 low was absolutely squashed by last week’s trading activity. I would say that the rally was short-lived, but that would be an understatement. Even in the light of statements made by Fed chairman Ben Bernanke, gold prices would not sustain any rallies for more than one day.
Lastly one has to ponder as to the effect that might enter the market due to the United States budget and debt ceiling, which are coming to a head this week. We are looking for sideways and lower pricing in both gold and silver, with a potential upside spike if the United States cannot result the debt ceiling crisis in a timely manner.
Proper Action :
No open trades as we await the next signal
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Gary S. Wagner - Executive Producer