The big thing that traders are taking away from today's much anticipated FOMC statement is the $10 billion further reduction in QE which is now down to $15 billion/month. Of that remaining $15 billion in QE, $10 billion consists of Treasuries and $5 billion of MBS debt. The Fed is on track to wrap up QE completely next month and that is what has traders pushing the Dollar higher and gold lower. Simply put, the era of abundant liquidity here in the US appears to be over. Note to QE taper deniers- you had better wake up in a real hurry. The market is telling you clearly that it believes the Fed.
Not that the Fed is in a hurry to raise short term interest rates. That still does not look as if it is going to happen any time soon.
What it therefore translates to as far as traders are concerned, is an environment in which low inflation still appears to be the general rule and one in which economic growth will be slow to moderate at best. This means that stocks are still the place to be; gold is falling out of favor even further, and commodities in general are going to be moving lower.
Not that they will not be exceptions to this general rule based on the individual set of fundamentals governing each specific commodity market. However, the big leveraged macro trade buying indiscriminately across the entirety of the commodity sector is not in the cards for now.
The result of this readjustment is that the Dollar remains the "Go-To" currency which can be easily seen in the steep plunge in the Yen, Euro, Swiss Franc and Australian Dollar ( the Aussie is a good proxy for commodities in general). The British Pound is getting a bid of a respite as traders are afraid to push too hard on it with the upcoming referendum over Scotland tomorrow looming.
With the Dollar/Yen hitting a six year high, the story is that the currency markets are going to dictate money flows and for now, those flows are into equities and out of commodities, including gold.
I have a full plate right now but here is a quick updated chart of gold for the reader. Notice that it is poised for a test of the last remaining support zone standing between it and the psychological $1200 number. That zone extends from near $1220 down towards $1212. If it fails there, it is going to test $1200. Below that is the low at $1180. Below that? That is scary.
India/Asia may be buying for festivals, etc. but that in and of itself will not be enough to launch gold higher on any wild surge higher before the year is out; not without Western oriented investment demand which has made the vote against gold for the time being.
One more quick chart - the US Dollar... If the Dollar closes through 85 basis the USDX by this coming Friday afternoon, look out above!
"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
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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