Gold is popping higher in extremely low volume late this afternoon as the prepared remarks from incoming Fed Chairperson Janet Yellen make the rounds through the news wire service. While the tone is extremely dovish, frankly I do not see any cause for news here as it is no secret that Ms. Yellen is perhaps one of the most dovish members of the current FOMC.
In spite of that, the typical knee-jerk reaction is taking place in gold and in the US Dollar, which was undercut by the comments within the statement. Those looking at the remarks are drawing the conclusion that the Tapering will be postponed until sometime next year. Recently, some have begun anticipating an earlier scaling back of the bond buying program.
My suspicions are that this rally is going to be viewed as a selling opportunity and not the start of a new leg higher. We'll see about that however. The volume on the move higher is extremely low as the news surfaced basically early in the kangaroo session in which many were not even paying attention or even trading while they waited for Asia to kick in and lift the liquidity a bit more.
I do find it rather interesting that crude oil is not moving higher on the news however. Crude has tended to be a decent proxy for the inflation expectation trade as in the past it has moved higher with a lower US Dollar and moved down when the US Dollar has been strengthening. Lately however, that market has been moving more in sync with its actual fundamentals and the facts are that the US has large supplies of crude with weakening demand due to the sluggish US economy.
Let's see what happens when the dust settles tomorrow and draw some conclusions then. From a technical perspective, the zone noted as "Key Support" has thus far held. If bulls can take the metal back up through $1300 and change that "12" handle, then we go back into the wider range trade which has marked gold for some time now. If not, and sellers sense weakness, look for another test of the recent low.
My own view of this QE stuff has evolved as I have watched the impact over the last few years. Frankly, I do not see what another month, two months, six months, or even a year is going to do other than keep the stock market bubble inflated. The money is simply not making its way into the larger economy in size. Velocity of Money is going nowhere. The reason is very simple - too much debt is in the system and there are too many structural issues in the US economy, most recently the fiasco being caused by that job-killing obamacare.
The one saving grace of this entire mess is that the deflationary impact of falling energy prices has helped consumers, especially those whose health insurance rates are now soaring higher. Grains, sugar, coffee, etc have also been moving lower, thankfully, but the verdict is out on whether the harvest lows are in for the grains or this is just another bounce in a wider bear market for some of the ag products.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
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