In some quarters, the comments of Boston Fed president Eric Rosengren have been interpreted to mean that the Fed is again contemplating reducing or stopping the current mortgage and bond buyback known collectively as QE3. How this interpretation can possibly be made based on Rosengren's actual words is beyond unfathomable. Here is the key passage from a speech he gave today.
"While we have seen some improvement in labor market conditions, significant accommodation remains appropriate at this time," Rosengren said today in remarks prepared for a speech in Minneapolis. "Core inflation remains at the very low end of recent experience, and the unemployment rate is close to the cyclical peaks of the past two recessions."
He added this: "If the incoming economic data do not reflect improvements consistent with both elements of our dual mandate, I believe the Fed should be willing to increase asset purchases," Rosengren said.
Yet, when he said ever-so-briefly that once things do improve, easing will be cut back, gold analysts fell all over themselves to say this was a sure sign from the gods that the Fed will be stopping QE3 soon.
Ridiculous. As we have said here many times, the economy is still winded and the equities markets are dancing close to being in a bubble. We are verging on deflation, not inflation. The legislators and chief executive in Washington made the foolhardy choice to cut spending when we are still at a cyclical high 7.5% unemployment. These are not normal times.
Bloomberg reported this, on top of Rosengren's commentary in Minneapolis:
St. Louis Fed President James Bullard said May 23 in London that more disinflation could prompt additional asset purchases by the central bank. Charles Evans, head of the Chicago Fed, said May 9 that inflation is "too low," though "it's too early" to respond with a policy shift.
Yet, inconceivably, Paul Volcker, the man who practically single-handedly triggered the severe recession of the early 1980s is warning about inflation. In March the U.S. inflation rate was 1%, annualized. Who's afraid of the Big Bad Wolf? (Mr. Volcker: all recessions are not created equal and the solutions for solving the problems of one slowdown are not always applicable to the next slowdown.) We do know and agree with Mr. Volcker that the restrained fiscal policy initiated by Congress and acquiesced to by the President is absurd in the face of a struggling economy.
This conflicting analyses hit the equities markets hard today, which in turn drove the dollar down. That pushed the price of gold and silver up. Both the DJIA and S&P 500 were off 0.7%, while the NASDAQ was down 0.6%.
More strikingly, bond yields have unexpectedly been rising. The yield on the 10-year U.S. Treasury note rose as high as 2.23%, up from about 1.6% at the end of April. The move pushed the 10-year yield above the dividend yield on the S&P 500 for the first time this year. Is this a sign the stock market rally is flagging? Well, yields are the main reason people have been buying equities. But, let's ask: what is so special about a yield of 2.15% on the S&P?
Some investors may be sniffing out the fact that gold is a better bet than a meager 2% yield especially since no one knows what will be the outcome of the current equities rally.
With less than an hour to go in trading, gold is up 0.87% and silver is up 0.97%.
As gold bulls we like turmoil in the stock markets. It makes gold - and to a lesser extent, silver - look attractive. We usually speak in terms of risk-on and risk-off days. Today we must speak of a turmoil-on day.
Wishing you as always good trading,
Gary S. Wagner - Executive Producer
A technical basis the best way to characterize recent trading activity in the precious metals markets is: range bound. We have seen the market test, unsuccessfully, at least on three occasions the $1400 per ounce price point in gold. It seems at least for the near term that that has become resistance. On the support side, the market truly bounced off of 1320, and then again bounces off of 1340. Now it seems that 1360 is short-term support.
However as you will see in today’s video we have had a series of consolidating candles which are signaling that neither the Bulls nor the bears are an absolute control of the market. This does not mean however that we have absolutely formed a bottom or base at 1340, although this is one possible outcome.
The other obvious possible outcome is this consolidation is merely a resting point before testing lower prices. We will see which of these two unfolds over the next few weeks. For the meantime we are still looking to sell the market at 1400 and above placing stops above 1412 and looking to cover between 1360 and 1380.
Market Sentiment: Bearish
Possible bottom at 1320 - 1340 current resistance at 1400
From the week of 05.24. 2013
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