Gold Weakens in the Aftermarket as the FOMC Cuts Again

Gold Weakens in the Aftermarket as the FOMC Cuts Again

Commentary for Wednesday, Sept 17, 2014 (www.golddealer.com) – Gold closed down $0.80 at $1234.40 waiting for the Fed news release regarding future interest rate bias – but dipped lower in the aftermarket as the Federal Reserve cut an expected $10 billion from its existing quantitative easing program – the remaining $15 billion dollar bond buying program will come to an end in October.

Even through the cut was expected the gold market moved about $7.00 lower on the news and then rebounded somewhat – moving into the afternoon – off about $2.00 – all in all not much in the way of fireworks – considering the buildup.

The FOMC seems intent on reinforcing the notion that interest rates will remain low “for an extended period of time”. If they just said this once and moved on it would not worry me too much – but this might be turning into a mantra. Which means they are still feeling their way around relative to extricating themselves from this extended period of free money. 

Silver was also lackluster – up $0.01 at $18.66 but the expected surge in silver bullion sales because of lower prices is yet to be seen.

Platinum closed down $5.00 at $1363.00 and palladium closed down $6.00 at $838.00.     

This from Neils Christensen (Kitco News) – The Federal Reserve continues to move ahead with its exit strategy, shaving another $10 billion from its monthly bond-purchase program; however, it has opted to leave its forward guidance in its monetary policy statement unchanged.

In a surprising move for some analysts and economist, the central bank has left the key phrase “for a considerable time” unchanged in its monetary policy statement.

Following the two-day Federal Open Market Committee meeting, the central bank reduced its monthly quantitative easing program to $15 billion, shrinking its purchases of mortgage backed-securities to $5 billion from $10 billion and its long-term Treasury securities purchase to $10 billon, from $15 billion.

During her press conference, Fed Chair Janet Yellen said that the exit is on track for the central bank to end its purchase program to end at the next meeting in October.

According to the monetary policy statement, the committee also remains optimistic on the U.S. economy saying that activity is expanding at a “moderate pace.”

The Fed’s forward guidance has been the subject of intense focus recently, with some analysts expecting a change in the statement, as the central bank had a fairly optimistic outlook of the country’s economic growth.

However, there has been no clear consensus and speculation that there would be no change as late as Wednesday morning following a much weaker-than-expected consumer price index report. According to the Labor Department, consumer price pressures fell 0.2% in August, below expectations of a 0.1% rise.

Annualized inflation dropped to 1.7%, compared to July’s increase of 2.0%. Annualized core inflation also dropped to 1.7%, below the Fed’s target of 2.0%.

Along with its monetary policy statement the central bank also released its updated economic projections. According to projections, the Fed has raised its estimates for the fed funds rate and is now expecting rates to hit 1.23% in 2015, up from the previous expectations of 1.20%. Rates are also expected to rise to 2.55% in 2016, an increase from precious forecast of 2.50%.

September also includes projections to 2017, with expectations that rates will average 3.79% for the year.

The Federal Reserve has once again lowered its estimates of economic activity in 2014 and 2015. The central bank expects gross domestic product to expand between 2.0% to 2.2% this year, down from June’s projections of 2.1% to 2.3%; for 2015, GDP is expected to grow between 2.6% to 3.0%, down from previous projections of 3.0% to 3.2%. Looking further out, the fed is slightly more optimistic, as they expect 2016 GDP to grow between 2.6% to 2.9%, up from the June forecast of 2.5% to 3.0%. Finally for 2017 the central bank expects the economy to expand between 2.3% to 2.5%.

On the employment front, the Fed has also become more optimistic. For 2014, they expect the unemployment rate to be between 5.9% and 6.0%, up from June projections of 6.0 to 6.1%; in 2015 they expect the unemployment rate to drop between 5.4% and 5.6%, down from June’s forecast of 5.4% to 5.7%. For 2016 unemployment is expected to drop between 5.1% and 5.4%, down only slightly from the precious forecast of 5.1% to 5.5%. Finally for 2017, the unemployment rate could drop below 5% and come in between 4.9% and 5.3%.

On Inflation, the central bank is expecting price pressures to remain subdued until 2016, relatively in line with their precious forecast. For 2014 the Fed expects core personal consumption expenditure to grow between 1.5 and to 1.6%, unchanged from June; for 2015, they expect core inflation to grow 1.6% to 1.9%, slightly down from June’s forecast between 1.6% and 2.0%; for 2016, they expect core inflation to rise between 1.8% and 2.0%, up slightly from June’s forecast of 1.7% to 2.0%. For 2017, the central bank expects core inflation to rise between 1.9% and 2.0%.

The vote for September’s monetary policy stance was not unanimous. Richard Fisher, Dallas Fed President and Philadelphia Fed President Charles Plosser voted against the action.

The walk-in cash business today was less than average – sluggish really considering how much is going on with the Federal Reserve. The phone business was equally unimpressive – we seem to be back to the old summer days scenario – the mounting buzz relating to the Fed action has existed the building and things are very quiet.     

The GoldDealer.com Unscientific Activity Scale is a “3” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 5) (last Friday – 7) (Monday – 6) (Tuesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers.

Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.

When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).

About shipping information – when buying or selling your rep will walk you through your current mailing information. Thanks for keeping us up to date if you have moved.

Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.

In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits – which seem to grow when things get this quiet. And it does not help that the world famous Randy’s Donuts is just down the street. 

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Thanks for reading from your friends at GoldDealer.com and enjoy your evening.

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