Commentary for Thursday, June 20, 2013 – Hold on to your hat as gold closed down $87.70 at $1285.90 and silver followed suit down a whopping $1.80 at $19.82. Equities and bonds fared no better and all acted as though Chairman Bernanke’s talk yesterday afternoon confirmed everyone’s worst fears: federal largess was coming to an end. But in fact he did not hint about much of anything including the bond buying program.
The Fed did not raise interest rates so the money spigot continues wide open. In 2007 the Fed’s balance sheet was under a $1 trillion dollars and is now at $3 trillion dollars and growing by at least $85 billion a month so what did Bernanke say that spooked the markets?
Let me suggest that our Chairman is so good at what he does that creating a downdraft has become second nature. Just by speaking quietly he seems to create an air that all is under control and that an unprecedented monetary stimulus is normal and there is nothing to worry about.
Platinum was also hammered today down $60.00 to $1365.00 and palladium was down $32.00 to $664.00.
Regardless of what Bernanke said the markets clearly believe the Fed will begin tapering perhaps as soon as next year but look at the record according to the Huffington Post: “The Fed says it will keep buying $85 billion a month in bonds until the outlook for the job market improves substantially. The goal is to lower long-term interest rates to encourage borrowing, spending and investing. It hasn’t defined substantially. The central bank also said that it would maintain its plan to keep short-term rates at record lows at least until unemployment reaches 6.5 percent. The Fed also said that inflation was running below its 2 percent long-run objective, but noted that temporary factors were partly the reason. The Fed also released its latest economic projections on Wednesday, which predicted that unemployment will fall a little faster this year, to 7.2 percent or 7.3 percent at the end of 2013 from 7.6 percent now. It thinks the rate will be between 6.5 percent and 6.8 percent by the end of 2014, better than its previous projection of 6.7 percent to 7 percent.”
I believe this Chairman Bernanke metric is somewhat of a sand bag prediction and the Federal Reserve really believes employment will come in better than projections so blaming him for capping the bull market in stocks makes no sense. I also think the markets believe that tapering is right around the corner or you would not see continued short-term weakness in gold.
So who to believe is the question and more importantly is it time to ignore the Fed? The employment outcome is problematic and I think both sources are overly optimistic. There are millions of people still unemployed and under employed and struggling with this recovery and if I am right the quantitative easing program will stay in place buying time so Bernanke might just be rattling his chips.
But the way Chairman Bernanke addressed Congress spooked all the markets even those with positive sentiment. This coupled with falling physical demand from India created by still higher import taxes and more talk of the possible fallout in the slowing China manufacturing sector created the perfect storm in the overnight Hong Kong market.
Gold was hammered to a 2 ½ year low and again presents a cheap opportunity for the real physical market.
Not ready to gamble? There is no harm in waiting and watching and such moves are sometimes prudent.
Both walk in trade and phone business were mobbed all day with virtually all buyers so once again a real bottom in these adjusting markets will be carved out by physical activity. Today there were no significant silver sellers and only one gold seller as the smoke clears and we get back on our feet.
These markets are turning out to be a real gun fight at the OK Corral so the timid may want to visit their local saloon. We could see continued follow through weakness in tomorrow’s market so stay alert. Thanks for reading and enjoy your evening if it is in keeping with the occasion. These markets are volatile and involve risk: Please Read Before Investing
Written by California Numismatic Investments (www.golddealer.com).