Commentary for Tuesday, Dec 17, 2013 GoldDealer – Gold closed down $14.30 at $1231.20 waiting for FOMC information about possible changes in the quantitative easing program.
Gold weakness began in the overnight Hong Kong and London markets and carried through in the domestic action but I would describe this move as drifting not necessarily the result of reaction to possible FOMC outcome.
To see this look at the 30 day chart of gold closing and you will see we are right in the middle around $1240.00 with $20.00 on either side so sentiment be it FOMC or technical consolidation or the price of oil or the lack of inflation numbers are not pushing prices in my mind: traders are drifting on either side of neutral waiting for something actionable, whenever that happens.
Day two of the famous Federal Reserve meeting will happen tomorrow and the recent budget agreement may encourage some sort of modified taper but I still think the Fed will not actually quantify the recovery and say the US is strong enough to stand on its own feet. What if they are wrong? Just kidding but really suppose they take a stand and the water backs up? You see what I mean, that is why the trading mentality is confused.
Silver closed down $0.26 at $19.79 and the waters are calm here also but I did see an increase in selling physical odd products this morning across the counter. So what are “odd” silver products? This is the stuff which really is silver bullion but is outside the usual realm being replaced with modern silver bars and coins which everyone now recognizes. Examples would be crudely made silver bars from small manufactures which were popular in the early 1970’s when good product was not as available as it is today. Most of this stuff is melted and turned into silver shot for the jewelry trade but it is a good idea to get your house in order if you have this kind of silver and turn it into what would today be considered “good product”.
Platinum was down $15.00 at $1345.00 and palladium was also down $15.00 at $701.00. Platinum today traded within $40.00 of this year’s low but never-ending labor and production problems in South Africa underpin value.
This from Chris Gaffney (EverBank World Markets): “The focus of investors continues to be on the FOMC meeting which will begin today. Bets on the possibility of a $10 billion ‘taper’ to be announced this week have increased with the recent labor market improvements and the possible Senate confirmation of a budget which could come later today. One piece of data which the members of the FOMC will be discussing in depth is today’s reading of consumer inflation which is expected to show a 0.1% increase MoM and a 1.3% increase YoY. In this topsy turvy economic environment, the FOMC is actually wanting to see a higher inflation number as they are worried about the US slipping into a deflationary spiral similar to Japan. October’s CPI figure was reported at -0.1%, and a repeat of that number would likely cause the Fed to continue with their latest QE efforts in order to try and ‘create’ some inflation. In addition to the CPI number we will get the November reading of our current account balance which is expected to show we ran slightly over a $100 billion deficit during the 3rd quarter. Global inflation seems to be a non-issue as a government report showed UK consumer price inflation unexpectedly slowed in November to the lowest level in 4 years. Consumer prices in the UK climbed 2.1% last month after increasing 2.2% during October. The median forecasts of economists surveyed by Bloomberg called for the number to remain unchanged at 2.2%, so the drop was a bit of a surprise. BOE Governor Mark Carney will address the House of Lords today for the first time and is expected to share his thoughts about the future of the banks QE efforts. This drop in inflation rates certainly allows the BOE more room to keep pumping cash into the economy and to keep rates low for an extended period. Exactly what I think their cohorts here in the US will also do.”
I know it is hard to believe but the Federal Reserve will look carefully for any type of inflation surge while deciding what to do with quantitative easing. This may sound like it is logical and perhaps it is but this type of tinkering makes me nervous when it comes to massive creation of fiat currency. It is kind of experimenting with the gas in your car and then cursing the devil when it blows up on Highway 66. An old fashion example but when I was a kid you really could buy substandard gas if you were broke enough and brave enough.
The walk-in cash trade and phones were very busy until after lunch and things slowed considerably. The GoldDealer.com Activity Scale being a “4” for Tuesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Wednesday – 4) (last Thursday – 5) (last Friday – 4) (last Monday – 3) (Tuesday – 4). The scale is 1 through 10 and we believe this is a reliable way to “sense” real bullion business.
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