Commentary for Wednesday, March 18, 2015 – Gold closed steady on the Comex today up $3.10 at $1151.40. But as Fed Chair Yellen explained the reasoning behind the Fed action gold moved higher by as much as $25.00 in the aftermarket.
The FOMC (Federal Open Market Committee) removed the word “patient” from their monetary policy. This of course was what used to be their way of describing their attitude toward any changes in the long standing near zero interest rate policy. With an improving US economy most analysts were expecting a rise in interest rates but the “patience” used by the Fed was throwing a monkey wrench into the financial markets. Did “patience” mean we would see a rate hike by this summer or by the end of 2015?
So removing the word today suggested that the Federal Reserve is more likely to do something with interest rates this year. Still the Federal Reserve seemed concerned about economic growth and the fact that it has moderated.
So we are back in that “fine kettle of fish” without the word “patience”. They confirmed that the 0.00 to 0.25% Federal Funds rate is still appropriate – for now. Does all this make sense – actually it does. The Fed is doing just what most believed would happen – they are sticking their toe in the interest rate water.
Commensurate with this position their answers are vague – consider this excerpt from their Press Release: “Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate.”
They all would have made excellent lawyers – when the world is looking for direction the above statement will fit almost any evolving scenario.
The reaction by gold was typical – no interest rate hike for now equals more interest in the physical gold market. This much at least has been consistent – dovish Fed comments equals steady to higher gold prices. But again this situation is so liquid it would be difficult to draw any moderate term conclusions. The jump in the price of gold is, in my opinion just another short covering rally. It was necessary to keep the short paper trade honest. But the bears are still in charge and technically gold remains weak.
An interesting side bar to this unfolding picture is the rising premiums on small gold coins like the British Sovereign. Premiums are now higher than any time in recent memory as the Europeans move into the physical market.
Perhaps a better place to look for gold’s short-term future however is the dollar. The Dollar Index yesterday closed at 99.65 – very strong indeed and it could get stronger. Today’s low was 98.09 and its high was 99.80 – as of this writing we are looking at 98.54. So the dollar got considerably weaker on the Janet Yellen comments and so gold moved higher.
Whether this dollar weakness is temporary is anyone’s guess. The European Union seems to be improving somewhat as their recent bond buying program progresses. This might help the dollar move lower relative to the euro but I would not take that bet. Anything can happen there – especially with Germany now griping about being the EU workhorse and Greece seemingly not being forthcoming with financial answers.
So for now the price of gold is directly controlled by the dollar. The big (small) interest rate hike is in the works – probably by summer – perhaps – maybe – unless and so forth. This will cobble the price of gold for now because the technical picture is negative.
Silver closed down $0.03 at $15.52.
Platinum was off $1.00 at $1093.00 and palladium was up $2.00 at $764.00.
You will get a much better picture of how this highly anticipated mumbo jumbo will eventually shake out on the short term tomorrow and into the weekend.
This is our usual ETF Wednesday information – Gold Exchange Traded Funds: Total as of 3-11-15 was 53,514,021. That number this week (3-18-15) was 52,475,650 ounces so over the last week we dropped 1,038,371 ounces of gold.
The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2015 is 54,094,507 and the record low for 2015 is 51,057,082.
All Silver Exchange Traded Funds: Total as of 3-11-15 was 624,677,809. That number this week (3-18-15) was 623,446,033 ounces so over the last week we dropped 1,231,776 ounces of silver.
All Platinum Exchange Traded Funds: Total as of 3-11-15 was 2,594,571 ounces. That number this week (3-18-15) was 2,587,454 ounces so over the last week we dropped 7,117 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of 3-11-15 was 2,945,012 ounces. That number this week (3-18-15) was 2,915,673 ounces so over the last week we dropped 29,339 ounces of palladium.
The walk-in cash trade was active after Fed comments – nothing big but at least the action was something more than a yawn. The phones were also steady for a few hours and then died.
The GoldDealer.com Unscientific Activity Scale is a “ 5” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 8) (last Friday – 7) (Monday – 5) (Tuesday – 7). 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.
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