The Drum Beats Already
As predicted yesterday, already the nervous Nellies are wringing their hands over the next opportunity the Fed will have to taper QE3. Is there no relief from thinking about something else aside from the FOMC meeting when it comes to gold, and silver? We believe that, having missed the side of the barn by a mile, the so-called experts now have to make their various constituencies forget that their prognostications were so far off. What better horse to flog than the next chance to taper? But much will intervene before December's meeting.
And, here's a surprise for the mainstream analysts: conditions are deteriorating due to an absence of proper fiscal policy; real government programs to engender economic growth; reckless budgeting and - get ready for this one - cyclical conditions. Things will not improve dramatically until the middle of 2014, if then. It will be 6 years since the last recession began. We usually run about one recession every 6 to 7 years, regardless of monetary or fiscal policy.
We are going to quote a lengthy passage from a Goldman Sachs outlook release yesterday on gold prices. We do so because Goldman has been the chief nemesis of gold bulls since the precious metal hit $1800. Their capitulation to neutral for the next few months is important. They then add a truly forward outlook to bearish in the middle of 2014
if the U.S. economy picks up significant steam. This, too, is important because Goldman is signaling a worry about conditions in the United States and therefore the world. We share that worry on a broader and deeper scale.
"The FOMC unexpectedly decided not to taper the rate of its asset purchases, preferring to wait for further confirmation of improvement in the US economic outlook. This announcement, as well as Bernanke's press conference, was more dovish than most had expected, pushing gold prices to $US1,365/oz. The decision, combined with the upcoming debt ceiling debate, leaves risks to gold prices as skewed to the upside in the near- term, in our view.
"However, with gold prices already back near their pre-June FOMC level, COMEX net speculative positioning already back at its April level as well as growing pressures on EM gold demand, we believe that this upside will ultimately prove limited (see Neutral gold prices near- term but still expecting new lows in 2014, September 17, 2013). We believe this is well illustrated by today's more muted rally in gold prices when compared to the significant rally in 10-year TIPS yields, helping close the significant valuation gap that had occurred between both assets over the past month.
"As a result, we reiterate our neutral stance on gold prices and continue to expect that gold prices will resume their decline heading into 2014 when we expect economic data to solidly confirm a re-acceleration in U.S. growth and warrant a less accommodative monetary policy stance."
Goldman is reacting and covering their backsides over the FOMC minutes. We think that the broad consensus in higher financial circles tells us not only about wishful thinking but about how far out of touch mega-millionaires are with the real economy.
Here are some key passages from the minutes that should tell us where the Fed's collective mind is positioned:
"The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term."
"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..."
"Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations."
It is important to note that only one member voted against the decision to stay the course. It takes 6 members of 10 present to pass resolutions and create programs for implementation.
A few additional observations should be made about what transpired yesterday in Washington.
The Fed actually cut its growth forecast on Wednesday for this year and next, citing obliquely badly conceived budget cuts and rising interest rates.
In addition, Fed Chairman Ben Bernanke said, the Federal Open Market Committee (FOMC) was wary of possibly "very serious consequences" from the brewing political battle in Washington over a new budget and the U.S. debt ceiling.
During one of the interminable "Cod Wars" of the 16th and 17th century along the Eastern Seaboard of the American colonies, one member of the Virginia House of Burgesses cried out: "We're not talking about fish here. We're talking about men's souls."
A word to the wise in Washington.
Wishing you as always good trading,
Gary S. Wagner - Executive Producer
After yesterday’s dramatic price surge in the precious metals markets, it doesn’t surprise me to see the market take a breather after such a strong price surge. Many pundits and analysts considered yesterday’s announcement by the Federal Reserve to be an absolute surprise, and those analysts are now rethinking their strategy based upon the fact that there will be a continuation of the current monetary policy with no tapering.
On a technical basis today’s market move in gold stalled just at our current resistance of 1374. Today’s video will look at this resistance area in detail and analyze where we believe gold prices are likely to head over the next couple of weeks. As we have initiated long positions we must maintain an eagle eye and diligence as this market trades through its range. With our primary goal of preserving capital, and are secondary goal of profits on our current trade.
Proper Action :
We entered long positions in both gold and silver yesterday with a special trade alert:
LONG GOLD @ 1350 maintain stop below 1331
LONG SILVER @ 22.80 maintain stop below 22.35
Click on bull below for current chart gallery