Will They Believe Her Now?

Traditionally, low interest rates mean a weak dollar and higher interest rates a stronger dollar. Traditionally also, by now inflation should be ringing its bell, beating its drum and howling like a banshee.

But, even with interest rates as low as the Fed will push them, the U.S. dollar is relentlessly pushing up and up. This, of course, has the effect of pushing gold down.

While we in the United States may feel as if we're still stumbling along to recovery, much of the rest of the world has fallen on its face. Europe is getting to be worrisome. China, even if you believe all of what they say, is also hurting. Japan seems practically comatose.

All those regions are not doing nearly enough to stimulate their economies and so, the U.S., like the tallest dwarf, finds its head and shoulders well above the others. U.S. rates are low, but not all that low.

Today, Fed chairwoman Janet Yellen said in very clear terms that rates will not rise for some time.

We can translate that a lot of ways. But for precious metals traders, it means the dollar will continue to strengthen, money will continue to pour - flood - into the equities markets, and the price of oil (and hopefully soon gasoline) will come down.

Oil and gold are moving in tandem again. American crude production and inventories are forcing a rethinking of world prices. It will be a long period of recalibration. We may see $85 per barrel in the not too distant future.

A bit perversely, even with low rates in place far over the horizon, the 10-year U.S. Treasury note's yield rose modestly today.

The FOMC statement noted its determination to end QE3 at its next meeting in October and to keep interest rates near zero. Phrasing was removed that said inflation was nearing normal. Its absence should serve as a counter to the assessment made in light of the inflationary spike in mid-summer.

Employment has improved somewhat, but until the holiday hiring, firing and dust settling, the year can't be fully analyzed . Even so, over the last twelve months, the unemployment rate has come down only slightly more than one point. If you like lukewarm job growth, you got it.

Look for gold to decline on all the above news.

And, let's not forget that tomorrow is referendum day in Scotland. If they break away from the U.K., there will be  a fair amount of disruption in the worldwide banking system and the dollar will further benefit. So, take off your bull pants for a bit and start wearing bearskin - it's the latest in fall fashion.

Here is an interesting addendum to the FOMC meeting that everyone should read and digest:
Policy Normalization Principles and Plans

As always, wishing you good trading,