Macro Morning: Gold tanks

morning1211

I have to hand it to the Fed they have been as transparent as a central bank can be with regard this taper caper and although the market took heed of more soothing words last night the fact that so many Fed Presidents and Governors are addressing the markets reaction to last week’s FOMC announcement and Bernanke’s presser tells me that the Fed is more, not less, inclined toward the taper sometime soon.

Which of course might “surprise” a few traders and investors again somewhere down the track.

Overnight Bill Dudley from the New York Fed, Dennis Lockhart from Atlanta and Jerome Powell who is one of the FOMC Governors were all out and about whispering sweet nothings into the markets ear and succeeding in their efforts toward calm. Which of course just means stocks higher and bonds down, which is some people version of calm and perhaps my version of a Panglossian expectation.

On the market Powell said:

the reaction of the forward and futures markets for short-term rates appears out of keeping with my assessment of the Fed’s intentions, given its forecasts

While on the outlook Bill Dudley said:

This means that the policy – including the pace of asset purchases – depends on the outlook rather than the calendar…

Economic circumstances could diverge significantly from FOMC expectations. If labour market conditions and the economy’s growth momentum were to be less favourable than in the FOMC outlook – and this is what has happened in recent years – I would expect the asset purchases would continue at a higher pace for longer.

I have stated here that I think the Fed is doing an exemplary job of explaining itself and if the market over-reacted then as Bernanke said in his presser and as the comments this week state it’s not the Fed’s fault. So I find it strange overnight that Christine Lagarde, head of the IMF, had a bit of a pop at the Fed’s communication strategy.

Anyway the soothing words which have brought balance back into the markets expectations without taking the taper off the table helped stocks rally hard again with the up 114 but 50 points off the high to close with a gain of 0.76%. The Nasdaq was also 0.76% higher and the S&P 500 was 0.61% higher at 1613. One thing to note is that both the Dow and S&P hit overhead resistance in our slow moving average which suggests that for the moment this rally remains corrective rather than a new uptrend.

Closer to home the SP200 on my VantageFX MT4 platform hit and so far rejected resistance yesterday – it needs to get up to and through 4830 to kick higher. In time however I am targeting a move below 4400.

asx 200, spi200, australian stocks,  daily

Elsewhere gold has fallen out of bed again and traded below $1200 early this morning and I’m not sure anyone on the planet was as bearish gold as me back at the end of last year and I have continued to update my view in the dailies and in our gold specific pieces. I will have a think about gold over the weekend and publish something on Monday after the end of the month tonight but it is worth remembering what I wrote back on April 16 as a guide:

But if it slips through here ($1312) then it is the 61.8% support level that comes in at $1140 oz and which is roughly the width of the pennant out of which it slid in January this year that is the next target.

xauusd, xau, gold, gold price chart monthly

Gold is under $1200 and pretty close to the support level highlighted in the context of where it came from well above $1600 when I started writing about it last year – I’ll have a think and update Monday. Just of note, JimmyR hasn’t even turned negative on the monthlies yet!

On FX markets yesterday I wondered if it was a combination of a short squeeze and some end of year physical flows for settlement today that pushed the Aussie up to its highs on Wednesday night? I continue to hold this view and AUDUSD looks likely to test back toward 0.9245 and then 0.9197.

aud, audusd, australian dollar, australian dollar price quote, audusd daily

GBP remains pressure with the weak data for Q1 GDP showing a year on year growth rate of just 0.3% with some timely revisions stopping the print being negative. GBP fell from around 1.5350 to a low of 1.5200 before a recovery to sit at 1.5255 and it looks biased back under 1.50 in the days and weeks ahead. Euro had an inside day and 1.300 is short term support and then 1.2940 which is huge. USDJPY looks biased back to 100.

Data

A raft of Japanese data today including the crucial CPI data the BoJ and Prime Minister Abe will be watching and other data such as unemployment and retails sales.

In Australia we finally have something out with the Private sector Credit (should say DEBT) data out while tonight we have German retail sales a bunch of European CPI data and Chicago PMI.

Twitter: Greg McKenna

Comments

  1. migtronixMEMBER

    Gold and cable appear correlated atm. Looked like trader fatigue had hit, boring session over night. Look forward to your PMs thoughts and for what it’s worth I’m still buying physical – dollar averaging down. Macro wise my big issue is mortgage rates rising. If they rise all summer I expect defaults by the autumn (northern hemisphere). Anyone notice the bail-in Cyprus style deal done in euroland? Coincidence?

    Thanks as always for your thoughts

  2. Deus Forex Machina

    Cheers…I haven’t had time to interrogate the EU deal yet but will have a look over the weekend

    Greg

  3. I wonder how many people realise now is an excellent opportunity to buy actual physical gold, with the price levered down by all the naked shorts? Many miners are approaching their production costs at these prices and may have to shut up shop.

    • darklydrawlMEMBER

      Perhaps…Just keep in mind Gold could fall a lot more yet.

      Yes, some producers won’t be economic at today’s price (or lower), but doesn’t mean the price won’t keep dropping in the short term.

      • migtronixMEMBER

        And so it has, dub 1190! Sell side momentum is huge. On the way to 1117? Probably so I’m shorting miners like NCM and troy

      • darklydrawlMEMBER

        My target is $800 within the next 36 months. Then I get interested. Patience people…

      • Agree when you have 170,000 tonnes of above ground stock the newly mined Gold each year (circa 2600 tonnes) is not always going to hold up the price. Just depends on how many of those holding existing stock are prepared to sell (in my opinion the Gold moving west to east is going into stronger hands). Closing mines will tighten supply though. Gold price dropped below mining cost for some miners in the mid 1970s rout when Gold dropped from $197 to $103. Over the following 4 years (once bottomed) the price rose from $103 to $850.

  4. yay!!! 🙂

    When i joined the workforce, i.e. finishing Uni studies until a point where the the Uni told me that they had nothing to offer as a higher degree than what I already had, I prepared a “to-do-list”. One of them was to accumulate X-kgs of Gold. I can now reach that goal faster and tick the box!

      • right, now it’s in the vault. But push comes to shove, it will go under the mattress, inside a cistern, etc and then plonk it onto my next generation as a inheritance, when the time is right! 🙂

    • While it’s “possible” the German request for 374 tonnes of Gold has forced the hand of the US to smash the price and shake out physical, it seems unlikely in my opinion.

      The Shanghai Gold Exchange has delivered around 1000 tonnes in China this year and we are to believe the US couldn’t source 374 tonnes for delivery to Germany? To suggest the US urgently needs to acquire 374 tonnes for this delivery is to suggest they don’t have the 8000 tonnes listed in official reserves, otherwise why not dip into that?

      IMO the Germans set the repatriation rate over 7 years (not the Fed). Before the 374 tonnes they’d initially planned on bringing back 150 tonnes (50 tonnes a year over 3) for testing purposes, so the repatriation just seems like an extension of that transfer rate.

      • migtronixMEMBER

        What do you make of JPM vaults being depleted a few weeks ago just as this takedown started?

      • The Gold being delivered on the SGE has to come from somewhere!

        With the lack of transparency in the Gold market unfortunately we are only left to speculate to many changes.

      • Thanks for the reply on twitter BB.

        On second thoughts, obtaining the 374 tonnes isn’t that easy, if it represents over 1/3 of China’s deliver this year. Then you would have a bidding war for the gold which looks bad macro-economically AND would cost more the banks involved. Easier option is to manipulate the price down? Already seen LIBOR and other prices have been manipulated.

        RE: the 8000 tonnes I guess if you want to stretch this theory for all it’s worth it could be due to rehypothecation.