Commentary for Wednesday, Dec 17, 2014 (www.golddealer.com) – Gold closed down $0.40 to close at $1194.30 and the aftermarket was quiet as the much anticipated meeting of the Federal Open Market Committee seemed to indicate that it would not change its time table relative to raising interest rates.
Believe it or not there has been a great deal of commentary as to what the Federal Reserve meant by the phrase “considerable time” when referring to the normalization of interest rates. Some writers claimed they might eliminate this phrase in future news releases but for now it appears Janet Yellen will not be doing anything which could signal a sudden change in monetary policy.
That’s the reason gold remained steady into the aftermarket. If the Federal Reserve signaled that its long standing easy money policy was coming to an end – gold would have weakened.
Still with thin holiday markets you could see a down draft in trading tomorrow.
There were other numbers out today which got little attention. The Consumer Price Index was down 0.3% in Nov – the result of falling energy prices but this was its biggest monthly decline since 2008. Fears of inflation have been completely erased from market expectation.
Most of the camera time today was centered not on the Federal Reserve or the CPI – it was President Obama’s announcement of the first steps toward trade normalization with Cuba which captured all the attention. It’s amazing that sanctions have been in place for 53 years.
This from The Wall Street Journal – US Stocks Jump as Fed Signal Patience – U.S. stocks extended gains Wednesday after the Federal Reserve retained its pledge to keep interest rates low for a “considerable time.”
The Dow Jones Industrial Average was recently up 270 points, or 1.6%, to 17341, gaining nearly 100 points in the minutes after the 2 p.m. ET release of the Fed’s policy committee’s latest statement. The S&P 500 index advanced 35 points, or 1.8%, to 2007 and the Nasdaq Composite added 78 points, or 1.7%, to 4626.
“The market doesn’t like surprises and we didn’t get one today,” said Rex Macey, chief allocation officer at Wilmington Trust. “We still have what I would call a supportive Fed—they’re watching things but they’re not going to act too quickly. I think the market is happy with a slow-moving, gentle adjustment period, and that’s what the Fed seems to be telegraphing.”
Bond prices fell slightly following the statement, with the yield on the benchmark 10-year Treasury note rising to 2.115% from 2.104% in the minutes immediately ahead of the statement. When bond yields rise, prices fall.
Some investors said they found the Fed’s tweaked message confusing. On one hand, the Fed reiterated that economic growth is on track. But on the other hand, it emphasized it was going to be “patient” in raising rates. Traders saw this as an excuse to take profits from the latest rally in Treasurys. The 10-year yield on Tuesday sank to its lowest level since May 2013.
Silver closed up $0.18 at $15.89 – and once again we are seeing steady accumulation by the small to mid-size public buyer.
Platinum closed up $3.00 at $1199.00 and palladium was off $4.00 at $779.00.
With all the talk about the strong dollar versus the price of gold you would think the usual inverse correlation is working well – but in the wider view the actual results might be surprising. Let’s begin with the generally accepted tenant that a strong dollar is antithetical to a rising price in gold.
Consider the 1 year chart of both the Dollar Index and the price of gold.
The Dollar Index one year ago was trading around 78.91 and 12 months later had reached a high of 89.55. Today the Dollar Index is 88.07 – still trading at the higher end of its range. And technically it looks like 2015 will be more of the same – especially if the Fed manages to raise interest rates in reaction to an improving US economy.
No doubt the dollar has been successfully strong – defying really the traditional economic wisdom that huge quantitative easing created an ocean of paper dollars which in turn must push its value lower.
This logical assumption had been the anthem of gold bullion buyers for decades and the fact that gold had not reacted properly – by moving up because the dollar was supposed to move lower was at first puzzling to the physical world and then discouraging.
Using the same 12 month time frame the price of gold began around $1200.00 and today is still trading close to that number with Wednesday’s closing being $1194.30.
If there was a one to one inverse correlation to these markets consider that a 10% increase in the dollar should equate to a 10% decrease in gold – if that were true gold should be trading around $1100.00.
I’m not claiming science – there are many other variables like the time span considered – the geopolitical situation – oil and physical demand from central banks. But it is interesting that with all the negative news concerning gold this past year – and with a Dollar Index that is considerably stronger one would think that collateral damage relative to the price of gold should have been greater.
If you are a pessimist relative to gold you might conclude that the price of gold has somehow dodged the strong dollar bullet and must move considerably lower. If on the other hand you are a confirmed optimist about gold bullion you might say that even under a deteriorating technical picture driven by lower oil – gold has not fared too badly.
Granted confirmed gold optimists are getting rare today. But contrarian investors are always moving against traditional theory and while it does take some sand – taking an aggressive stand in weak markets can be very rewarding.
According to a recent Bloomberg story traders believe Russia’s next move to bolster the ruble will be to sell gold. The world sanctions coupled with the fall in oil have created major grief for the Russians and while it makes sense they may have to sell gold – it does not follow that such sales will further pressure the price of gold short-term.
Bloomberg also claims Russia has tripled its gold reserves since 2005 so they are certainly in a position to sell if they needed cash but considering they have been aggressive buyers why now sell into a weak market? The amount of gold they hold should – if anything be raised and thus encourage the world that these current Putin problems are part of the bigger cyclical trend. It also follows that Russia does not sell gold because the amount of money raised would be small relative to their economy and word-wide commitments. Selling gold now would also look like a capitulation to the Western powers – it will never happen in my book.
The walk-in cash trade was slow and so were the phones – again typical of the holiday season.
The GoldDealer.com Unscientific Activity Scale is a “2” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 3) (Monday – 2) (Tuesday – 4). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be busy and see a low number – or be slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
You should now be getting email confirmations which include a PDF File when buying or selling so you can confirm your invoice or purchase order. This information also includes the various forms of payment and bank wire instructions. So when you buy or sell please check to see if we have your current email 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.
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Our holiday schedule this year – Christmas (Closed Thursday the 25th and Friday the 26th) – New Year’s (Closed Jan 1st and 2nd).
A gentle reminder – each year during this holiday season the packages delivered to all 50 states slow down because Santa has control of the air traffic.
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