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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Jackson Hole: Myth of the All Powerful Central Banker Continues

Commodities / Gold and Silver 2014 Aug 22, 2014 - 05:49 PM GMT

By: GoldCore

Commodities

Today’s AM fix was USD 1,281.00, EUR 965.12 and GBP 772.29 ounce. Yesterday’s AM fix was USD 1,280.50, EUR 965.03 and GBP 772.32 per ounce.

Gold fell $13.80 or 1.07% to $1,277.30 and silver slipped $0.03 or 0.15% to $19.47 per ounce.


Gold in U.S. Dollars - 2 Years (Thomson Reuters)

Gold  is flat in trade in London and gold in Singapore also flatlined around the $1,280/oz level. Gold came under pressure yesterday when a break below the 200-day moving average of $1,284 an ounce triggered stops and technical selling sent prices falling another 1%.

Gold has fallen below its 50, 100 and 200 day moving averages (see chart) and support is at the June lows at $1,242/oz which gold may test next week.

Silver for immediate delivery rose 0.2% to $19.52 an ounce. Support for silver is at $18.70/oz. Spot platinum rose 0.5% to $1,424 an ounce, while palladium bucked the trend and was 0.3% higher at $885 an ounce .

Silver in U.S. Dollars - 2 Years (Thomson Reuters)

Gold has had a five day losing streak and is headed for its worst week in five and a second week of losses. Gold is down nearly 2% for the week. It looks oversold but couldsee further selling pressure next week with traders still on vacation. Gold’s seasonal sweet spot begins in September with the Indian wedding and festival season coming up.

Gold futures trading volumes have been very low all week and are 39% below the average for the past 100 days in London according to Bloomberg data. Traders with hedge funds and banks remain on vacation and therefore the move lower on very low volumes may not indicate a continuing trend.

Geopolitical Risk - Russia, Israel, Syria, Iraq, ISIS and September 11 13 Year Anniversary Geopolitical risk remains high but has yet to impact prices. Geopolitical tensions in Ukraine and the Middle East are being watched. Any escalation in violence should prompt safe haven bids for gold.

Gold remains nearly 7% higher so far in 2014 as still ultra loose monetary policies and tensions in the Middle East and Ukraine boosted haven demand. Israel has bombed Palestine again and vowed to target more Hamas leaders after yesterday killing three commanders.

The U.S. said the militant Islamic State poses an “imminent threat” after American journalist James Foley was beheaded.

U.S. crude CLc1 was slightly higher at $93.98 a barrel, but still set to post a fifth straight weekly fall.

The sophistication, wealth and military might of Islamic State militants represent a major threat to the United States that may surpass that once posed by al Qaeda, U.S. military leaders said on Thursday. So far, however, the fighting has had little impact on oil supply.

The 13 year anniversary of September 11 approaches. The risk of a similar type of terrible, high impact atrocity remains high and is not factored into complacent markets.

Myth of the All Powerful Central Banker Continues In Jackson Hole   The myth of the all powerful central banker continues in Jackson Hole today.

Markets wait with bated breath for Fed Chair Janet Yellen's and ECB Mario Draghi’s speeches at the annual gathering of central bankers in Jackson Hole, Wyoming later today.

Market participants are focussed again on the short term and the silly ‘will she, won't she?’ debate regarding Bernanke’s successor Yellen at the Jackson Hole symposium.

Yellen will likely obfuscate and not give clear guidance regarding monetary policy as Bernanke and Greenspan were past masters at.

We believe that further QE and money printing remains very likely given the poor structural state of the U.S. economy. We advise investors to fade out the short term noise emanating from Jackson Hole and from assorted policy makers on both sides of the Atlantic and focus on the reality that further monetary easing and currency debasement will continue for the foreseeable future.

ECB President Mario Draghi is under pressure to use his last remaining tool -- printing money to buy huge amounts of bonds - but he is not expected to show any renewed urgency in that regard when he speaks later.

There are continuing hopes that the ECB will embark on QE even though it has been less than successful in Japan and the jury is still out regarding its efficacy in the U.S.

The market believes EU QE is unlikely in the short term but there is a growing consensus that it will be seen in 2015. This would be bullish for gold prices, especially in euro terms.

Gold prices fell after minutes from the Fed's July meeting on Wednesday showed policy makers debated whether interest rates should be raised earlier. Gold has fallen this week and there is speculation that it was due to fears that the Federal Reserve could hike interest rates sooner than expected.

However, if that were the case then stock markets would have also come under pressure instead of marching on to new record highs. From a market perspective this is very counter intuitive and suggests gold’s falls were for another reason.

A four-day rally for U.S. stocks carried the S&P 500 index to a fresh record yesterday. The S&P 500 reached 1992.37, its 28th record finish of 2014 and first since July 24.

Market talk is of Yellen pushing the S&P to new records at the psychological 2000 level. Irrational  exuberance is alive and well on Wall Street and being stoked by the ultra loose monetary policies of Yellen and her merry band of Jackson Hole cohorts.

It is worth noting that copper is heading for a 3% gain this week as are some other commodities. If markets were genuinely concerned regarding a sudden rise in interest rates, commodities and all risk assets would be under selling pressure.

Some market participants will rightly ask - why is it only gold and silver that have seen sudden declines this week?

The dollar hovered just below its 2014 peak against a basket of major currencies today. Dollar gains this week have pressurised gold. Speculators fear that better than expected data might prompt the Fed to raise interest rates.

Rising rates would hurt bonds and equities but would support gold. This was clearly seen in the 1970s when rising interest rates corresponded with rising gold prices. Gold becomes vulnerable towards the end of an interest rate tightening cycle when there are positive real interest rates and savers earn something on their deposits.

It is important to remember that central banker’s strategies of ultra loose monetary policies contributed in a significant way to the global financial crisis. Low interest rates by central bankers and Alan Greenspan in particular led to rampant speculation and risk taking on Wall Street, collateralised lending, the sub prime crisis and the stock and property bubbles.

Will a continuation of the same monetary policies that got us into the financial crisis really get us out? Conventional wisdom is that yes it will. However, the jury remains out on that question and time will tell.

History suggests that currency debasement on the scale we are seeing will end in significant inflation.  

Inform yourself of the 7 Key Gold Storage Must Haves

This update can be found on the GoldCore blog here.

Yours sincerely,
Mark O'Byrne
Exective Director

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