Gold Awaits Fed Chair Yellen’s Testimony Wednesday

Gold Awaits Fed Chair Yellen’s Testimony Wednesday

Commentary for Monday, Feb 23, 2015 ( www.golddealer.com) – Gold closed quietly today down $4.10 at $1200.30 – simply biding time and waiting for the upcoming Fed Chair Yellen testimony this week.

There are a few secondary issues – the breakdown of the Russian/Ukraine issue – the semi-solution for an extension of Greek debt – crude oil dropped below $50.00 – the dollar moves lower on the second half of the trading day as home sales disappoint. Gold is now within $14.00 of a 2015 low close ($1186.00/Jan 2 nd) – this is important because we had a strong run at the beginning of the year – which would indicate some fear trade was back – now the fear trade has existed right so gold does not seem to be too worried about either the US or Europe.

Looking for a few reasons to buy gold bullion besides the Russian’s invading eastern Ukraine? This from Frank Holmes (Kitco/US Global Investors:

The market for gold coins and bars in Europe is now twice as large as that of the United States, and similarly on par with those of China and India. In addition, the India Trade Ministry is said to be seeking to cut the gold import tax from 10 percent to 2 percent.

With new global mined gold supply averaging around 258 tonnes per month, and with 255 tonnes of gold withdrawals from the Shanghai Gold Exchange in January, China is effectively consuming all of the world’s new mined supply.

In 2014 governments added 477.2 metric tonnes to their reserves, the second-biggest increase in 50 years and 17 percent more than the previous year. Furthermore, central banks have added to gold reserves for the past five years, representing a reversal from two decades of selling.

Silver closed down (yawn) $0.01 at $16.25 – it looks to me like silver will have to move lower perhaps the $15.50 to $15.75 range before real physical buying resumes.

Platinum was off $6.00 at $1166.00 and palladium was up $7.00 at $786.00. We are selling the Baird Rhodium 1 oz bar for $1300.00 – rhodium has been trading flat which is surprising considering solid auto sales. This is not the first time I have suggested rhodium – patience however is required because it is a bit like silver – either hot or not.

Even the best crystal ball gazers can’t figure out what the Federal Reserve is going to do with interest rates on the short term – this from AP frames the argument nicely. But I think way too much emphasis has been placed on this event relative to gold. Sure it will push prices lower if the Fed acts – but not that much. And it will support prices if the Fed does not act but is not enough of an incentive to push prices significantly higher. So all the fanfare in the gold trade is premature – we will need something bigger than a quarter point interest rate hike to move gold. We have been range bound since the summer of 2013 – $1200.00 to $1400.00 – expect more of the same if the Fed does nothing.

This from Martin Crutsinger – WASHINGTON (AP) — After years of sounding reassuring notes about the need to keep interest rates at record lows, the Federal Reserve is finding the shift to an era of pending rate hikes a tricky and complicated one.

But anyone who expects Fed Chair Janet Yellen to clarify the timetable for a rate hike when she speaks to Congress this week could be disappointed. Yellen seems likely to take a wait-and-see stance that echoes a message the Fed has sent of late: That while employment and other economic gauges have brightened, the Fed remains concerned about excessively low inflation, lingering weaknesses in the job market and troubles overseas.

Yellen's testimony Tuesday to a Senate committee and Wednesday to a House committee — her semiannual report to Congress on the economy and interest rates — could produce a battle of wills: Lawmakers will likely push for clarity, and Yellen may counter by citing the hazy economic landscape the Fed is navigating.

Beyond rates, Yellen could face questions about legislation to expand Congress' oversight of the Fed. The measure has support among conservative Republicans but is opposed by Fed officials who say it would compromise the central bank's independence.

Many analysts think Yellen's testimony will hew closely to the minutes of the Fed's most recent meeting. The minutes depicted policymakers as struggling to assess when the economy might strengthen enough for them to raise rates and how best to signal their intentions.

The Fed risks triggering financial turbulence as it shifts from a period of ultra-low rates to one in which it must choose how soon, how fast and how long to raise rates to avoid future high inflation. Higher Fed rates will, in turn, affect rates on many consumer and business loans and could depress stock and bond prices.

Its most recent policy statement expressed the Fed's intention to be "patient" about raising rates. Many economists have predicted it will raise rates in June. But the minutes of the most recent meeting showed that some Fed officials feared that removing "patient" from their policy statement could spur investors to raise long-term rates to "undesirably tight" levels.

Yellen will likely note progress in reducing unemployment while repeating her dissatisfaction with tepid pay increases, a shortage of full-time jobs and inflation persistently below the Fed's 2 percent target.

She may also stress the many uncertainties the Fed must assess, including a harsh winter in some parts of the country that could slow home building. There's also concern about weaker growth in U.S. export markets, such as China and Europe, and whether a preliminary deal giving Greece more time to repay debts will hold.

While various Fed officials have discussed a potential June start for rate increases, many analysts say that target may now be slipping, especially given that inflation has slowed further, reflecting cheaper energy and a rising dollar.

"The Fed wants to see the temperatures thaw and more certainty in other areas before they move rates," said Diane Swonk, chief economist at Mesirow Financial in Chicago, who thinks the Fed will raise rates by September.

But Ellen Zentner, senior U.S. economist at Morgan Stanley, said the uncertainty expressed in the minutes suggests that the Fed may wait until next year.

"This is a (Fed) committee that wants to be cautious," Zentner said.

This from Joseph Adinolfi – NEW YORK ( MarketWatch) – "The strong dollar continued to lose steam in the week between Feb 10 and Feb. 17, according to data from the Commodity Futures Trading Commission, as speculators cut their net dollar-long positions by $3 billion to $44 billion. Net-short positions held against the euro, yen, pound and franc narrowed, suggesting that investors aren't as confident that those currencies will continue to depreciate."

I would not bet the farm on the above – but a weaker dollar would help the case for higher gold prices. However, there are so many variables on the table – the next step with the European Union – the price of crude oil – returned safe-haven buying perhaps if the Russian/Ukraine situation heats up – the Greek debt problem – the expected rise by the Fed in shorter term interest rates based on improved jobs numbers.

The reason to look for a softer dollar is that traders are convinced the euro will move lower (quantitative easing) against the dollar. In the financial system question when everyone believes an outcome (the stronger dollar) is certain. What happens if quantitative easing makes the euro stronger? It could happen you know because no one really knows the ultimate outcome when it comes to creating large amounts of fiat currency – just something to think about over the morning coffee.

This from FXEmpire – “India is likely to remain the world’s biggest gold consumer this year after regaining the top spot from China in 2014, driven by robust jewellery demand, the World Gold Council (WGC) said. Indian consumer demand for gold jewellery and investment totaled 842.7 tonnes last year, compared with 813.6 tonnes by China, according to WGC data. Demand dipped in both countries in 2014 from record levels a year earlier, but Indian demand slid only 14 percent, compared with a much steeper 38 percent fall in China.”

Be careful about concluding too much from gold statistics – remember Mark Twain’s admonition. But if you consider the one year gold price chart the above is interesting. In the past 12 months gold has moved from $1350.00 to around $1200.00. Now consider the WGC information above – “ (gold) Demand dipped in both countries in 2014 from record levels a year earlier, but Indian demand slid only 14 percent, compared with a much steeper 38 percent fall in China.”

Obviously demand is one reason gold lost 10% of its value but the interplay between these two cultures is more interesting relative to future pricing.

The fact that India is overtaking China is notable but next year China might reassert in the quest for more physical gold – this back and forth play is also good for the gold market.

And the notion that both countries are on the same physical gold track should make everyone sit up and take notice. China has already developed a massive manufacturing capacity for virtually anything in a very short period of time. India is well on its way down the same road.

And for this manufacturing dominance to work there must be a huge pool of cheap and eager labor. No problem for both nations – crushing poverty is at work. As I have pointed out – every one of these newly minted workers loves physical gold and in both cases gold is a surrogate currency. Now add another plus – there are billions of people in this collective story and if each person wanted to put 2 gold rings on their finger the price of gold would explode.

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