Take a look at the 30 minute chart of gold. Note the huge volume spike coming on the heels of the FOMC minutes.
It is quite evident that the Fed is chasing the gold bears out of the gold market. I have maintained for some time now and am on record as stating that I believed and still believe that the Fed might actually come around to the point where they would welcome a higher gold price. Not a soaring gold price mind you, but one that is firmer.
Why is that? Simple - because the Fed, and this Fed in particular, is terrified of deflation. They really do believe that they can control inflation but that they are powerless to stop deflation. Their weapon of choice to fight deflation has been QE but that has not worked or perhaps a bit more kindly, has proven to have been ineffective at generating an inflation rate of 2% or more.
This is why I have continued to take exception to those who see every single move lower in the gold price as part of a sinister plan on the part of the monetary authorities to discredit it. Let's just ask a simple question and think about this:
What would have happened to gold had the Fed said that it was pleased to see the stronger Dollar and not concerned at all about a disinflationary wave moving around the global and threatening to swamp the global economy? Answer - gold would have been obliterated and the Dollar would have soared.
Question? Did the Fed say this? Answer- No, they did not. They said the exact opposite. And what happened? Answer - gold shot higher. Is it not obvious to any open-minded person that if the Fed were currently at war with gold, that they would not clearly understand in advance what a set of minutes such as were released today would do to the gold price? Of course they do. They are not stupid people. They can read price charts and see trends as good as the rest of us technicians.
The facts are that the Fed WANTS INFLATION and right now it cannot seem to get it. A falling gold price threatens to send that signal very clearly. So does a soaring Dollar.
What to do therefore? Why just talk down the Dollar. That is what they are trying to do with this latest release of their minutes. Will it work? I doubt it; mainly because by comparison, even if the Fed is not in a hurry to raise rates, the US economy looks great compared to Eurozone and Japan.
Also, the Fed's policy stance on interest rates is HEAVILY DATA DEPENDENT. What this means is that as we move forward in time, each successive batch of economic news about the US economy is going to be closely scrutinized to see whether or not it will be of sufficient strength to force the hand of the Fed on the interest rate front.
What happens if we get another jobs report that the market (rightly or wrongly) interprets as very strong? Just remember what happened last Friday to the Dollar when that jobs data hit and came in higher than most in the market were anticipating. The Dollar shot vertical and gold dropped vertical.
The more things change, the more they seem to remain the same, at least as far as these goofy markets are concerned any more. Once again we are right back to where we always seem to end up and that is to watching economic data and playing a guessing game with our illustrious Federal Reserve official of: "Will they or Will they Not" raise interest rates.
Sigh! Is this anyway to run an economy ... my oh my has this nation declined.
Here is a chart of the gold market ( short term 30 minute). Note the scare given the gold bears by the Fed. Also note that we have a temporary bottom on this chart near $1205 and a temporary top near and extending from $1220-$1225. Those are the parameters that we are now dealing with as traders.
Upside breach of the resistance sets up gold for a pop towards $1240. Downside breach sets it up for a test of $1200 and then lower once more. Buyers have clearly been at work today near $1205 but sellers appear to be trying to make a stand near $1220.
Short term indicators are positive.
Also, the huge rally in the gold shares CANNOT be ignored. Gold bears be careful right now.
"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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