Yellen, Softer Economy Drive Prices
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Submitted by Gary S. Wagner on Friday, February 14, 2014 - 15:58.
Yellen, Softer Economy Drive Prices
It seems that everything is up in world markets today. Gold, solidly. Silver, spectacularly. All U.S. and European stock indices up. Oil marginally up. Ten-year bond yield up. The Nikkei was the only entity shut out of the party. And natural gas, which declined, even though there is a shortage in the U.S. because of the cold.
Of course, the dollar has softened, a good thing for the U.S. economy for the moment.
That leads to speculation that perhaps Fed chairwoman Janet Yellen is more believable than Ben Bernanke, even though she is delivering practically the exact message he delivered during his last twelve to eighteen months as chairman.
Maybe analysts and traders are finally embracing the idea that interest rates will stay low, low,low while QE3 continues to taper down.
Tapering is not the issue. "It's the economy, stupid," as Bill Clinton's campaign said so famously. Extremely intriguing are two facts. One small. One large.
1) Some softer economic data has dented the U.S. economy this week. That pushed the dollar down and gold and silver up. Today was a different story, data-wise.
The preliminary Thomson Reuters/University of Michigan consumer sentiment index remained unchanged at 81.2 for February, beating expectations for a fall to 80.6. That is good news for the U.S., and should have weighed on precious metal prices, but it did not.
2) Equities saw their best weekly gain of 2014. And that normally would push gold and silver down. Far from it.
Another factor coming into focus is the rise in purchases by gold ETF's, a quiet drama unfolding week after week. Kitco pegged it this way, zeroing in on GLD, which has struggled for so long:
"Holdings in SPDR Gold Shares (GLD), the world's largest gold ETF, rose by 7.5 metric tons Thursday to 806.35, according to the ETF's website. They are now up by 15.89 tons since Jan. 28, with several analysts commenting that they are showing signs of stabilization after a large decline in 2013."
Some people are beginning to believe gold imports in China will accelerate even further as its central planners make a play for their currency to become an international player. A dubious thought since the economy in China is opaque.
The yuan traded around 6.0657 per dollar Thursday. It has been appreciating since it was unpegged from the dollar in 2005, strengthening about 25 percent since then. However, there isn't enough gold on five planet Earths to influence the huge movements of currency required by a moderately large economy like China. It's believed the Chinese have abut $90 billion in gold reserves all told. Their economy clocks in at about $7 trillion per year.
The Indian government on Friday raised the import tariff value on gold and silver to $421 per 10 grams and $663 per kilo, respectively, in order to take into account the volatility of global prices. And to line the pockets of the central government. It's legal, but dumb.
New Delhi also raised the tariff value of areca nuts has been raised to $1,872 per ton from $1,816 per ton.
That leaves us with much to contemplate over the weekend.
As always, wishing you good trading,
Gary S. Wagner - Executive Producer