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.
Once upon a time, in a galaxy far, far away, nations used to covet strong national currencies. Such were a vote of confidence in their economy, their political leadership and their fiscal and monetary policy. Not any more!
We live in an era in which monetary officials seem to take turns cursing their own currencies and like Haitian Voodoo quacks, take turns sticking pins into it in order to bring it to its ruin.
Such was effectively the case with the minutes released this afternoon from the Federal Open Market Committee.
In effect, the Fed officials seemed to be casting aspersions on the weak growth in the Eurozone ( they could not help throwing Japan and China in there as well ) as deleterious to their efforts to generate some inflation here in the US all because these "bumbling monetary officials over there ( my take ) "cannot seem to get their ducks together long enough to actually generate some real growth in their respective economies which in turn is causing "our Dollar to keep going up ( again my take)".
"If this keeps up, it will mess up our export markets and thus curb our growth which will in turn cause us to miss our goal of generating 2% inflation".
There you essentially have it in a nutshell. And to think we pay these peoples' salaries!
Immediately, as if on perfect cue, down went the US Dollar, up went the Euro, the Swiss Franc, the British Pound and even the Canadian Dollar.
What do you think that did to gold? If you answered "it caused it to reverse from its losses and move higher on the day", go to the head of the class because that is exactly what happened.
What the Fed did was to express its fears about the overall slowdown in global growth and the deflationary impact of a strong Dollar. That is being interpreted by the markets as a sort of brake on the timing of any interest rate hike next year as the market had come to expect.
Equities of course LOVED, ADORED, PRAISED, REJOICED in it as it meant more cheap money for a longer period of time - just great for stocks which remain the only place in town where one can expect to invest money and produce any sort of meaningful gain or return on investment.
It is rotten news for savers and those looking for some sort of stable, decent, conservative place to park money. It means more rewarding of debtors and more punishing of savers a bit longer than the market had anticipated yesterday.
That being said, once the reaction from the minutes wears off, I suspect we will go right back to the same trends previously, namely the Dollar will continue to strengthen and commodities will continue to grind lower. After all, if the Fed itself is complaining about slow global growth, why be in a hurry to rush out and load up on sagging commodities, many of which are suffering because of the lack of solid, growth-based demand.
Let's see how the dust settles and then proceed from that point. Personally, I hate these days because of the all the convulsions that the minutes produce in the markets. It makes sense to just get out or lighten up ahead of the release and let the others rip and shred each other to pieces while you watch the chaos blissfully from the sidelines.
I am noting one interesting thing at this point however - crude oil and its products ARE NOT responding to the weaker Dollar, at least at this point. That tells me that the fundamentals are so weak in crude right now on account of the slowing global growth and burgeoning supply, that not even the macro trade in which index and some hedge funds blindly buy a basket of commodities when the Dollar moves lower is not having any impact on that complex. That is not good news for growth nor is it good news for those talking up inflation.
Deflation is the name of the game and has been for the last few years. Those who keep yapping about hyperinflation and currency induced inflation are simply barking up the wrong tree. Maybe they will snap out or their stupor and wise up and listen to what the markets are saying. Then again, maybe they will not!
Here is a chart of the US Dollar. Note that it has been stymied at the resistance zone shown on the chart. With a near vertical move over the last three months, the FOMC minutes has put a cap on the greenback for the current time. Let's see if it holds at 85 on the downside or not. If it does, it will consolidate and meander sideways for a while as it bides its time and garners more strength for what I believe will be a push through 87. It is going to be interesting to see if the Fed now gets in the same game that Draghi and the ECB were playing back when the Euro was near 1.40.
My guess is that Draghi and company are not happy at all about the FOMC's statement. They do not want their Euro moving higher not when they are dealing with an economy that is stuck in the toilet.
I want to stress that the grey metal has NOT YET confirmed this however. It is showing some stability here just above $16.50 as it oscillates around the $17 level.
I have noted two resistance levels that have formed on the chart. The first comes in near $17.50; the latter, and the more formidable, shows up at $18. If the bulls can push the price up past both levels, we will some significant short covering.
The reason for the comments is that Monday's bizarre trading day in which the US Dollar completely erased all of its strong gains from last Friday's jobs report, sent the entire commodity complex soaring higher. That wild day impacted the price charts of many individual commodities ( remember that 30 cent rally in the beans?) and painted some chart patterns that have the pure technically-oriented traders perking up.
Remember, our markets are run by computers and these computers are "pure technicians" in the sense that they do not care, nor do they consult, fundamentals. As such one cannot ignore technical developments in markets.
With the Goldman Sachs Commodity Index continuing to swoon ( it is threatening to take out a 27 month low today!) it is difficult for me to envision silver mounting any kind of sustained rally, especially with copper having trouble near the $3.00 mark. Still, bears will need to be alert to any violations of those upside resistance levels.
I should note that Australia's Perth Mint reported some very strong sales of its silver coin ( 757,000 ounces in September and 819,000 in August). According to Dow Jones that was double what it had been selling a the few previous months.
While that is good news it is not enough to shift the sentiment towards the metal overall at this point. Silver needs a STRONG Economy with lots of industrial demand ( think cell phones, tablets, electronics, etc.) and growth to spur it strongly higher. I know I shall incur the wrath of the silver perma-bulls with this next comment but frankly I do not view silver as a safe haven. It is too bulky and too hard to transport in size. For a store of value in inflationary times however, it can be quite good.
For now, perhaps the market has found a level above which it is comfortable trading with prices having fallen far enough for the time being. Given its 23% plunge in price in three months time, it is not unreasonable to see some consolidative type trade.
With the FOMC on tap, there is no telling what we will get. The market could make another fresh leg lower or it could take out resistance and move higher. I simply do not know.
One quick comment and chart - Unleaded Gasoline scored a 46 month low in price today! I for one am quite happy to see this and I am sure a whole lotta other consumers are as well.
As I said above, this underscores the deflationary type environment we are seeing in the commodity complex which is why I am a skeptic when it comes to silver. I will say this - if silver does fall below that low from Monday this week and especially below last Friday's low near $16.64, I would not rule out a further fall to near $15.00.
