Re-Re-Re-Thinking Yellen

March 24, 2014 - 4:51pm

 by Gary Wagner

There are many experts out there today explaining that the reason gold took a hit today is because they have read some special meaning into Janet Yellen's post-FOMC press conference last week. That's pure hogwash.

Uncertainty? Maybe. Perhaps not the clearest message ever sent by the new "more transparent" Fed, but is that group pointed toward a rate hike? It would come as a major league surprise if unemployment stays above 6.5% and inflation somehow sticks below the ridiculous 2% threshold.

However, we will grant the experts one thing: right now, the unemployment numbers can't be trusted to behave in a traditional manner. We don't mean the silly notions about a much higher rate lurking somewhere. (If that is so, today's stats started from a higher floor before the recession. The numbers, in other words, are relative, not absolute.)

The same factor that is keeping unemployment high is keeping inflation low. The two items then draw breath from one another. More people are entering the workforce than leaving and there still aren't enough jobs to help them fulfill their quest.

Much has been made of Baby Boomers retiring. Indeed they are taking retirement payments, but they are starting businesses at a record pace. So, they are not either out of the workforce nor in a rocking chair. They want money. Yet their new business start-ups, a hybrid of brick-and-mortar and e-commerce usually, have yet to generate profits. So, they haven't created many new jobs. But that will happen in short order. The stars are aligning. Meanwhile, big-organization jobs are scarce except for the well-educated, the plucky and those willing to move to where professional jobs are actually located.

It can't be said enough: if you're undereducated you're out of luck.

So, what did drive gold into the ditch today? A few small things tended to add up.

First, there was more profit taking. If gold was going to hover around 1330, give or take a few bucks, a cadre of traders was going to play it short and drive the price down. Profit-taking is alive and well.

Second, gold purchasing and trading has come to a virtual standstill in China as that country remains morbidly enthralled by the ghastly drama of Malaysian Airlines' Flight 370.

Third, soft manufacturing numbers out of Germany tended to push money to the sideline. The analytical thinking (not that we're endorsing this viewpoint) is that there is room to invest in German equities. However, French economic activity picked up and if you read the numbers, it seemed to pick up just the amount that the German numbers ticked down.

Finally, Russia has gone back into its cage for now. The G7 is in deliberation over what to do next. You can count on one thing: Russia is not welcome at the club. The shooting down of a Syrian warplane by Turkey was not a message to Syria. It was a message to Russia.

As always, wishing you good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

We issued a very aggressive buy trigger last week. This high risk trade was entered from the long side at 1333. Our stop, just below 1320, was executed this morning at 1319 at a loss of $14.

Maintain long silver and maintain stop at just below 19.75.

Gold Market Forecast

As mentioned in our opening letter there are many experts with multiple explanations for today's double-digit selloff in the precious metals markets. Over the last few weeks we have been speaking about this dramatic rally at the onset of 2014 and how at some point it would run out of steam, and how profit-taking would result. That is exactly what we witnessed last week as the market traded close to but was unable to trade above $1400 per ounce, and then began to trade lower.

This raises important questions. First has this recent correction in the marketplace inflicted any major long-term technical damage? Second, at what price point can we look for gold to begin to stabilize and find price support? These two critical questions will be the primary topics for our show.