Weaker Dollar And Other FOMC Fallout Push Gold And Silver Higher

Wednesday June 15, 2016 17:06

The relatively dovish statement delivered by Fed chairwoman Janet Yellen confirmed what most of us knew beforehand. That is, that given economic conditions in the U.S. and the rest of the world, the Fed would leave rates as they were.

The euro was up over a half percent against the dollar. The Brexit-troubled British pound was up almost as much.

Gold charged up $7.40 an ounce, bolstered by both the weaker dollar and regular trading. Silver soared 0.80% or 14 cents per ounce. (Both prices at 4PM NY.)

Equities loved what they heard from Yellen once again. More cheap money but not negative yields like we are seeing in Japan and Germany on their mid-range bonds.

In her spoken remarks, Yellen seemed to imply that we may be looking now at only one rate hike this year. Of course, everything is conditional upon data, as the Fed constantly points out.

Highlights from the unanimously approved FOMC written statement are:

• Although the unemployment rate has declined, job gains have diminished.

• Growth in household spending has strengthened.

• Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft.

• Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.

• Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.

An additional key section of the statement reads as follows (note italics):

• In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

The Gold Forecast will continue our analysis and interpretation of the statement tomorrow, but today let’s look at the immediate effects.

Oil deserves a look first. Both West Texas Intermediate crude and Brent North Sea are once more settling into the middle of the ranges where they belong right now. For WTI that means the middle-to-high $40 range. We are looking at a trading price today, (including after-close trading) of under $48 per barrel.

Lack of demand, huge stockpiles despite declines recently and reserves in the ground are like the three-headed dog guarding the entrance to the ancient underworld. Just try and get by the hound of Hades. Lots of bearish bite there.

Crude is down for the fifth straight day.

The yield on the U.S. drooped below 1.60%, a continuation of a trend that began in the last week of May.

While we are waiting for the closing numbers from New York regarding equities, we can see they are only modestly higher. Europe and Asia were boosted much more by the prospect of the Fed’s standing pat than the U.S. markets were by the reality of the stance.

We shall see how markets continue to react tomorrow.

The VIX dropped a solid 7.25% today on the CMOE. It’s far too early to even be bothered with the CME’s implied probability for a rate hike at the next Fed meeting at the end of July.

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Wishing you as always, good trading,

Gary Wagner