Commentary for Wednesday, March 16, 2016 (www.golddealer.com)
By Ken Edwards and Richard Schwary of California Numismatic Investments Inc …..
Gold closed up $4.70 on the Comex today at $1235.10 – this close was based on a firm gold market, probably reacting to three days of lower prices with some bargain hunting.
The price action after the market close was more interesting as Janet Yellen reordered the current thinking that further interest rate hikes were already in the bag. You will remember that these past few days saw rumors that the Federal Reserve would raise interest rates perhaps as soon as this summer but this contrary thinking was put back in the bag after the Comex closed today.
Janet Yellen and the Federal Open Market Committee (FOMC) will leave rates unchanged (this was anticipated) but excited the bulls when expectations of further interest rate hikes this year were substantially scaled back.
This pushed the price of gold in the aftermarket up another $24.00 and at the same time pushed the dollar substantially lower. The Dollar Index was happy around 97.00 before the announcement and moved substantially lower afterwards – we are now trading at 95.50.
So what does all this mean for gold? Well if history is any guide – not much. Comex trading tomorrow will probably reflect the big aftermarket move today and then – well then the market is likely to settle back into the lethargic trading pattern we have seen since the price curve flattened out in early March – finally trading lower with some traction in the $1230.00 range.
All in all I think gold still has to hold up – meaning there will be other challenges and paying too much attention to this “white noise” is distracting and can get in the way of a well ordered plan.
This from Jeff Cox (CNBC) – Fed leaves rates unchanged, sees 2 hikes this year – A dovish Federal Reserve held the line on interest rates Wednesday and substantially scaled back its expectations for further moves ahead.
Where the U.S. central bank at its December meeting had projected four rate hikes in 2016, new estimates released Wednesday reduced that number to two. Fed officials also cut their expectations for economic growth and inflation.
In addition to the two rate increases this year, the Federal Open Market Committee now projects just two hikes in 2017, according to the latest Summary of Economic Projections.
The current interest rate target is 0.25 to 0.5 percent, and Fed officials back in December had expected the upper level to rise to 1.4 percent by year’s end. With the new projections, the FOMC now sees just a 0.9 percent funds rate in 2016 and a 1.9 percent level by the end of 2017, both reflecting cuts of half a percentage point.
Federal Reserve officials held off from raising borrowing costs and scaled back forecasts for how high interest rates will rise this year, citing the potential impact from weaker global growth and financial-market turmoil on the U.S. economy.
The projections were included on the so-called dot plot, a graph that shows where individual members see the Fed’s interest rate target each year. There was a considerable shift lower in the latest estimates.
The Fed also cut its GDP growth outlook for 2016 from 2.4 percent to 2.2 percent and reduced 2017’s call from 2.2 percent to 2.1 percent.
Despite recent public comments from some members indicating that a rate hike was appropriate, the FOMC approved the decision 9-1. Only the Kansas City Fed’s Esther George dissented; she wanted to hike rates at this meeting.
In the statement, the committee referenced “global and financial developments (that) continue to pose risks,” language that contrasted to the December statement, which said the committee was only “closely monitoring” those conditions.
The committee saw household spending “increasing at a moderate rate,” while housing “has improved further.” The statement did not address the “balance of risks” issue included following some previous meetings.
Despite the Fed’s aggressive rate projections at the December meeting, futures traders had been holding to a slower trajectory for the path of rate hikes. Consequently, the fed funds market moved little after the decision, except for a drop in expectations for a June rate hike.
“They still see a pretty slow-growth low-inflation world ahead of us. They’re catching up with the market,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “The big takeaway is the Fed is adjusting to the global economy, as the market already has. It’s really tough for our rates to go up much when they’re negative in the rest of the world.”
The committee continued to include language that it was confident inflation would gravitate toward the 2 percent goal and is lower now due largely to energy price declines. But economic projections indicated some misgivings about the current pace of growth.
Inflation expectation changes were split: Committee members see headline inflation, which includes volatile food and energy costs, at 1.2 percent by the end of the year, slightly lower than the current level and down from the December estimate of 1.6 percent.
The core personal consumption expenditures level is still expected to be 1.6 percent at the end of the year, consistent with the December projection. Core inflation projections for 2017 also were taken down a notch, from 1.9 percent to 1.8 percent.
At least in terms of economic projections the dovishness exceeded expectations from Wall Street, where some Fed watchers fully expected the committee not to raise rates but were looking for more hawkish language on rates, considering a recent upturn in economic data. Jobs and housing numbers continue to improve, while gross domestic product is likely to come in above 2 percent, after a 1 percent gain in the fourth quarter.
After more than seven years of zero interest rates and more than nine years since the last rate hike, the FOMC in December enacted a quarter-point hike. Financial conditions quickly tightened afterward, giving policymakers pause about future moves. However, the last month or so has seen a rebound, with a strong rally in stocks and a bounce in government bond yields.
Silver closed up $0.06 at $15.32.
Platinum closed down $1.00 at $959.00 and palladium closed up $7.00 at $577.00.
This is our usual ETF information – Gold Exchange Traded Funds: Total as of (3-9-16) was 56,632,501. That number this week (3-16-16) was 59,927,389 ounces so over the last week we gained 294,888 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 was 57,130,025 and the record low for 2015 was 47,568,082.
All Silver Exchange Traded Funds: Total as of (3-9-16) was 613,073,751. That number this week (3-16-16) was 619,130,656 ounces so over the last week we gained 6,056,905 ounces of gold.
All Platinum Exchange Traded Funds: Total as of (3-9-16) was 2,303,346. That number this week (3-16-16) was 2,355,544 ounces so over the last week we gained 52,198 ounces of gold.
All Palladium Exchange Traded Funds: Total as of (3-9-16) was 2,263,685. That number this week (3-16-16) was 2,309,661 ounces so over the last week we gained 45,976 ounces of gold.
The walk-in cash business was average at best today but the aftermarket caught some customers by surprise. The phones were on the slow side – and what we all can learn at this point is that gold remains very volatile.
By the way – if you are new to the metals don’t be in a hurry. The process of protecting yourself financially with real gold or silver bullion has been around for a long time and can be abused when prices move higher. Avoid pressure from telemarketers who are on commission – and especially avoid promises of quick profits – a sure sign that the dealer will be the only one who makes money. Be careful if the dealer calls you describing a profit opportunity. Take your time in the process – sleep on the idea – and make an informed decision.
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 – 6) (last Friday – 4) (Monday – 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.
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