Gold Moves Lower as Immediate Syrian Action Cools

Gold Moves Lower as Immediate Syrian Action Cools

Commentary for Wednesday Sept 4, 2013 (www.golddealer.com) – Gold closed down $22.10 at $1389.90 seeing early selling pressure as the possibility of US action in Syria is pondered. Could the President be looking for a place to land? Gold has now reversed 15% of its recent advance from the $1211.00 lows we saw in late June.

getchart

So is the recent excitement moving along or is this a welcomed consolidation within a generally rising market? Actually this type of pullback is typical of a generally rising market but it is again too soon to count the chickens. Especially because the Syrian position even among Congress remains fuzzy.

Silver continues to confound down $1.02 today closing at $23.36 and I expected better even with the talk of profit taking.

Platinum also amazes down $43.00 today at $1495.00 with Ford car production making records and other car manufacturing doing better than expected.

So why is gold cheaper with Syrian intervention looming? The dollar is solid, both gold and silver have been recently strong making profit taking a big advantage, car sales are soaring supporting the better economy theory, and finally the resolve to strike Syria for alleged gas attacks is not strong with the American public. Unfortunately Hilary Clinton has joined the President Obama “strike force” but let’s hope Congress prevails and votes for a less caustic response. At any rate the tenor of the commodity markets is now defensive but watching. Finally with a score of important numbers coming in on this short week gold traders will ponder what if anything the Federal Reserve will do regarding the much telegraphed “tapering” which was supposed to happen in September.

I am still doubtful because with inflation numbers almost nonexistent the Fed will need not only manufacturing and jobs numbers to improve they will need better housing numbers which will fade if interest rates rise (the result of a non- tapering approach). So there is still a great deal of uncertainty out there but one final thought about gold: the numbers out of Europe are improving (a negative for gold) but debt problems in many countries are a mess. Not just the smaller EU countries but places like Indonesia will suffer greatly when central banks worldwide modify their quantitative easing programs. Hand-outs will diminish greatly as a result of “tapering” and social equality will suffer.

This from Kira Mc Caffrey Brecht (Kitco) is really worth the read: The Changing Of The Guard At The Fed And What It Means For Gold – “This proves to be an event-filled week in the financial markets with the U.S. Congressional debate over military action in Syria and Friday’s U.S. employment figures. Another key event in the background is the upcoming announcement of a new U.S. Federal Reserve Chairman. The president may want to initiate this process prior to the September 18 Federal Open Market Committee (FOMC) meeting and ahead of what could be a contentious budget battle in Washington D.C. over the next few months. What could this all mean for gold? Let’s take a look. With current Fed chairman Ben Bernanke expected to step aside when his term ends in January 2014, the FOMC will be undergoing a large transition in the composition of its make-up right at the same time the central bank is beginning its exit from the four plus years of extraordinary monetary policy easing. The Fed’s balance sheet has skyrocketed from around $800 billion before the global financial crisis in 2008 to nearly $3.6 trillion in the wake of the massive quantitative easing policies. There is a lot to unwind and strong leadership and general consensus among committee members will go a long way toward keeping markets orderly during this historic monetary policy unwind. What happens in the next few months could play a big role in the pace of economic growth, the level of interest rates and the outlook for gold. Will President Obama choose Federal Reserve Vice Chair Janet Yellen, who is seen in some ways as a safer choice for the financial markets? She is a "known quantity" and could potentially usher in a relatively calm transition position. Yellen is known as a strong proponent of easy money policies. Perhaps news of a Yellen appointment could result in a knee-jerk bullish reaction in the gold market amid expectations of longer and looser easier money policy. Or will the president appoint his economic advisor—Larry Summers. The noise out of Washington suggests that President Obama is leaning towards Summers, who has a reputation for being tough and an even aggressive debater and a history for pushing for significant change. He is seen as a critic of quantitative easing and could pull in the reins more quickly on the accommodative position by the Fed. While headline news of a Summers nomination could initially be gold negative, the results of Summers policy shifts could ultimately be gold bullish over the medium term. There is a matter of style in addition to substance. Negotiating the waters of the Federal Open Market Committee is a delicate task and markets react best when near consensus decisions are achieved. Internal strife over the best course of monetary policy will not exude the confidence the financial markets need during this critical exit strategy period. Markets will likely view Summers as more of a wild card, who could change the course of monetary policy near term, whereas Yellen would likely to continue to tow the Bernanke path. The FOMC includes 12 members, including the chairman and the vice chart. Five are regional bank presidents that vote on a rotating basis. The president nominates the Fed chairman and the appointee must be confirmed by the Senate. But, given the heightened political tensions and partisan politics driving Washington, this year’s confirmation process could become protracted. Additionally there will be three members leaving in early 2014 which means the president will have additional positions to fill. The bottom line? There is a great deal of turnover for the Fed ahead. Barclay’s analysts have estimated that a Summers nomination could result in higher interest rates and slower economic growth. This could send equity prices spiraling lower and could ultimately be gold supportive as investors diversify into safe-haven and alternative assets. "Our rough calculations suggest interest rates in the event of a Summers nomination could be roughly 50 bps higher over the next few years relative to a Yellen nomination. There could be an even larger impact on mortgage rates as that market is highly sensitive to Fed policy and would return fairly quickly to more historical spreads. We could easily be looking at mortgage rates above 5.5% by year end," wrote Barclays analysts. Higher mortgage rates in turn could slow the housing market recovery and have subsequent economic ripple effects of economic slowdown. "In the event of a Yellen nomination, particularly if it comes with a decision from the Fed to taper later than September, we think 10-year Treasury yields could return to the 2.60% neighborhood and we would expect a more gradual back up in rates on a more certain and more dovish outlook for policy," according to Barclays. If a leadership change to a Summers Fed does unfold and results in an earlier monetary policy tightening path— that in turn could result in slower economic growth and a lower level of job creation. While a Yellen nomination might initially be seen as the most gold supportive pick, Summer’s policies could create economic and market conditions that will make gold look even more attractive in the months ahead.”

According to Coin World the new Series 2009 $100 Federal Notes will be released on October 8 as planned so expect the “look” of the famous Ben Franklin to change somewhat and include further anti-counterfeiting measures: a bigger problem worldwide than our Uncle Sam would like to admit.

Walk in cash trade was active for more than half the day but phone business was nothing special and no whales decided to visit. The CNI computers place my almost famous LA Physical Trade Business Number at a disappointing “3”. Like us on Facebook and follow us on Twitter @CNI_golddealer. Thanks for reading and enjoy your evening. These markets are volatile and involve risk: Please Read Before Investing

Written by California Numismatic Investments (www.golddealer.com).

Leave a Reply