These Next Few Days Could See Significant Price Resolution For Silver Investors

I’ve been reading with great interest over the last month or so all the various articles on both the bear or bull side of the silver and to a lesser extent, the gold trade. Lately, the market has been flashing some signals that investors and market players need to pay attention to. What I am about to write is not a prediction of sorts but more of a guide as to what we “might” expect in the coming days or weeks in the silver market. (My guess is days and I will get into that a bit later).

Most of the talk I’ve been hearing has to do with the majority of the opinions out there at the moment that imply silver is “coiling” or “basing” for a significant pop upward. As it stands now, Silver is in its 21’st day of price consolidation after being sold off from $32.50.

Months ago I pointed out that the breakdown in the gold and silver minders index was foretelling further selloffs in the silver market. Silver and to a lesser extent gold, took a while to follow suit but they eventually did and today we sit with silver prices in an extremely tight range and more importantly, below $30.00 an ounce. ($28.80 to be exact as I write this).

Most of the logic behind the thinking that silver is going to explode higher soon is based on a few prevalent themes. The first one is the extremely bearish sentiment numbers. As a contrarian, people like to go long when bearish consensus is at extremes and conversely, when bullish consensus is at extremes, people like to go short. If you’ve been following the stock market you know that these consensus figures don’t always pan out. As an example extreme bullish consensus (optimism) has been in the equity markets for quite some time now and those markets just keep ploughing higher. Another reason I’m hearing has to do with what others are referring to “basing” or forming a launching pad of strong support following which the metal will explode upwards after this lengthy consolidation ends. I won’t get into some of the other reasons because to date, they have all been proven wrong (Quantitative easing programs to name the largest “supposed” catalyst – that one hasn’t worked out too well has it?)

So as investors what do we do? Continue to buy into the blind regurgitated nonsense about infinite easing that will propel silver and gold higher? Do we buy into the fact that FIAT will die one day and only those holding silver will survive? Do we buy into the theory that we are basing for a significant move higher? That’s up to you to decide based on your beliefs about the system.

However, I like to look for clues that could suggest direction. Just like the gold and silver miners index foretold a breakdown in the price of gold and silver, there are other clues we can look to when analyzing or trying to predict which direction silver will ultimately resolve in.  This post will examine these clues.

I don’t want to get too long winded in my post but I feel that it is necessary to remind people that the markets often have a way of hurting the most people at the same time. That is, when everyone thinks the market will go one way, often it does the exact opposite and do a lot of damage to a lot of people. With that said, it is important to note the events of this past week alone surrounding Cyprus. As the gold and silver bull camp has often preached, banking holidays will signal the explosion in gold and silver prices. It appeared as though gold and silver were ready to break out on Sunday night in the overnight Asian futures market but those gains were quickly erased. Both metals rallied on Monday but except for gold, silver has lost that momentum. So, if bearish sentiment was at extremes, (and one can deduce from this that there must have been a lot of “shorts” in play) we should have seen a massive short covering that could have propelled silver much higher. However, the move was quite minor.

What might really be happening here is that silver and gold are both bleeding a slow death as their respective bull markets come to an end. I continue to point to that May 2011 blow off top in Silver when the chart went parabolic as I do the October 2011 double top in gold. Both metals have never come close to trying to re-test those highs but instead both metals are firmly caught up in a very noticeable and lengthy downtrend. Forget demand. I can confirm from someone more knowledgeable than me that the Perth Mint’s retail market for silver, both domestically and internationally are “dead”. Kitco metals is offering sales on silver bullion as are other online bullion retailers. This is not what one expects in a bull market or a market ready to explode.

With all that said, I don’t want to drift too far off topic so I will put aside my own thinking for a moment and look to the clues that I touched on earlier in this article. The silver bull camp has often argued that silver’s industrial use far outweighs its supply. Logically speaking, silver, being primarily an industrial metal, is expected to perform well in times of global expansion. Much like copper, one expects that in a time of global expansion and recovery, the metal should perform relatively well as the demand for the metal picks up. The same can be said for platinum. So, on that note, I was struck by what happened this week in both the copper and platinum markets. To wit, is what happened this week in platinum and copper foretelling the direction that the silver trade is going to finally resolve? A look at the charts is in order.

First, let’s take a look at the 1 year chart for copper. Note it’s consolidation phase labelled by the blue wedge. That consolidation phase is roughly the same time period that silver has seen in its own current consolidation. The breakdown is significant as it plummeted through key areas of support.

Copper 

Then, let’s zoom in and take a look at a more recent 3 month snapshot of copper;

Copper 3 mos

The consolidation phase is seen more accurately in this zoomed in shot. The 3 “black crow” candles that usually warn of danger ahead did just that. The consolidation in Copper lasted from the 25th of February to the 19th of March before it finally broke down, a period of 22 days.  There may be more to meets the eye with copper though than just technical patterns.

According to TD securities, there may be more to this copper price collapse than meets the eye. As noted in the linked article, despite the fact that equities are nearing or at all-time highs there appears to be a disconnect between the falling price of copper and rising equities. 

TD Securities note some factors working against copper. First, according to TD;

 “the equity rally has been more about lower systemic risks in Europe and Federal Reserve liquidity injections, rather than the idea the economy is improving. Second, a rising U.S. dollar is also weighing on copper. Lastly, and most importantly, they say, is that China's growth might not be as strong as expected. "This implies that inventories will remain elevated for a while and that we are unlikely to see strong imports into China in the near term. In addition, manufacturing activity outside of the U.S. is on a bit of a slide—which usually spells bad news for copper. So the metal may be responding to the real economy and supply/demand fundamentals rather than the liquidity-driven euphoria that U.S. stocks have been rallying on,"

Secondly, let’s take a look at another industrial metal, Platinum. Again, we’ll take a look at its one year chart where many bearish patterns/warnings were visible to those paying attention.

Platinum

Again, you will note the blue wedge at the far right that represents Platinum’s consolidation period. Platinum is now again at a discount to gold after getting clobbered yesterday.  It made up some ground today but the intermediate term remains unclear after it’s expected bounce. Clearly a bearish head and shoulders topping pattern has emerged.  Platinum bounced off the neckline but I expect it to pierce the neckline in short order leading to further declines. On the longer term horizon there is a distinct double top with the secondary top also forming the head of the aforementioned bearish head and shoulders topping pattern. Platinum recovered slightly today but was unable to penetrate the 200 day moving average that it breached yesterday.  Let’s zoon in and take a look at the 3 month chart for Platinum;

Platinum 3 mos

Note the consolidation period in platinum took roughly the same time as copper, 22 days before its downtrend resumed in earnest.  Again, the real reason for the breakdown is not known but if we apply the same logic that was applied to copper’s price action, if there is worry about industrial slowdown in places like China for example, the the industrial metal's price may be tied into the real economy and associated fundamentals as opposed to the liquidity fuelled rallies of the stock market which pain the illusion of a recovering economy.

This brings us to silver.  We all know that it has been in a significant downtrend since May of 2011 when it had a parabolic blow off top and has been in a bearish downtrend since. Let’s zoom into the 3 month period as by now, you all know about silver’s slide.

Silver 3 months

As you will note on the chart, silver suffered a bearish death cross on March 1st when the 50 day moving average crossed and fell through the 200 day moving average. In addition, silver has now been in an extremely long consolidation period as well.  The chart above was prepared last night but today marked the 21st day if silver’s consolidation phase.  Like copper and platinum we see that we are approaching the apex of the wedge formed during this consolidation phase and silver is about to reach its do or die time.

As you all know from my past writings on silver, I have maintained for quite a while that I felt silver wouldn’t really complete its correction from the artificial May 2011 highs until we saw sub $22.00 per ounce prices and my opinion on that hasn’t changed. I maintain $20.00 –$ 22.00 is in the cards and perhaps even as low as $18.00.  As I pointed out in a prior post, silver was starting to take on a shape of a significant head and shoulders pattern that could signal much lower prices ahead.  I posted charts in my re-cap of this event on February 28th, 2013 when the death cross was close to confirming.  Here’s the chart I posted on that day:

silver today[4]

With the FED statement today not being quite as bullish for gold and silver as prior ones have been, it would not surprise me to see silver and perhaps to a lesser extent, gold, follow the path of copper and platinum. It is important to keep in mind that silver, copper and platinum have industrial uses that make them more vulnerable than gold to economic signals. If we are to use platinum and copper as our indicators for what may lie ahead for silver then instead of seeing that sharp rally that many people are calling for, we may actually see a significant decline.  If we use the consolidation periods noted above for copper and platinum and apply them to silver then we may be closer than you think of finally resolving which way the white metal is going to go.

I prefer to wait for confirmation.  According to my own numbers, a close above $29.80 could set off an explosive rally to the upside.  However, a close below the recent low of 27.92 could set off significant selling that would surely test the neckline or at the very least the $26.11 area of SIGNIFICANT AND VITALLY IMPORTANT support.

At some point even the most astute silver bug will have to come to the conclusion that silver is primarily a monetary metal or an industrial one. You can’t have your cake and eat it too. If we are of the view that silver’s primary use is industrial and not monetary as is my position, then we may have just gotten our clues on the future price direction from platinum and copper.  If you are of the view that silver is primarily a monetary metal then you have to really review that position and ask yourself why despite trillions of dollars in quantitative easing measures globally, the price of silver has shaved over 40% from it’s high of 2 years ago and why all recent gains attributed to easing measures have essentially been priced out out of the metal.

Like I said and it is important to highlight, silver along with copper and platinum are primarily industrial metals that make them more vulnerable to economic signals than gold. The reality is, before the financial crisis hit in 2007, people ran to gold, not silver in times of trouble. Whether by accident or design, the world flocked to silver after the financial crisis of 2007 while completely ignoring the fact that historically it has not been a flight to safety metal but instead an industrial one. The reality is that retail demand for silver is dead. people aren’t lining up at bullion shops anymore and the line-ups at bullion desks are gone. You cannot dispute that fact. It’s time for silver to return to being a metal whose price is determined by industrial usage.

This piece would be incomplete if I failed to comment on today’s FOMC statement.  The committee left monetary policy unchanged in a move that was unexpected. The vote to hold the party line was 11-1 in favor of the current accommodative policy.  However when reading between the lines, it does appear as though the FOMC is starting to throw out hints that it will not accommodate indefinitely.  What could ultimately turn out to be bearish for gold and other commodities that include industrial metals was that the committee said that it is very aware of the costs of it’s easy money policy.  What I got from this is that it is beginning to plan for an exit strategy, especially in light of the improving economic conditions in the United States.  Although Federal Reserve Chairman Ben Bernanke said nothing market moving, investors should be worried that the recent good economic news may signal that the FED sill start to slow down the presses which would be bearish for gold and raw commodities.  When we take these thoughts in conjunction with the statements I made above regarding the industrial uses for platinum, copper and silver and the fact that two of the 3 have resolved their consolidation phase to the downside, people wanting to invest in silver may want to wait until we get resolution at the aforementioned levels first.  Now is a time to be neutral but I feel as though the answer to which way silver is going to go will be known soon enough.

Keep your  heads up because the price of silver is on the verge of resolving very soon.  I’ve provided you with the information that hopefully you can use when making your decisions.  This is not a recommendation to buy or sell.  I’ve painted the levels to watch as clearly as I can and I will take action accordingly when those levels are met. My point is that if you are a silver investor or trader, these next few days may turn out to be the most important trading set up days we’ve seen in silver for over 3 weeks. Would I be a buyer of silver should the metal come down to $18.00 to $20.00 levels?  I will reserve commentary on that until I have the opportunity to reassess the situation should this event happen. 

Therefore, like many silver articles that have popped up on the internet over the last week or two regarding silver’s basing or “coiling” be aware that the explosion in price can happen either way. Also, if we were truly in a situation where the shorts were going to be severely squeezed, Sunday night, Monday, after trading opened following the events in Cyprus would have been as good a time as any to see such a massive squeeze.

Let The Gold Conspiracy Regarding Germany Begin!

Anyone who follows the gold and silver headlines knows by now that the German Bundesbank announced that it wishes to repatriate some of their gold holdings.  In a nutshell approximately half of Germany’s gold is being stored in New York. The central bank of Germany (Bundesbank) has announced that it wishes to move 674 tonnes of their gold back home and has agreed to terms to have that gold moved back home by the year 2020. The deal will include the complete withdrawal of 374 tons of German gold stored at the Banque de France in Paris (about 11 percent of the total) and 300 tonnes from the gold being stored in New York. Carl-Ludwig Thiele, a member of the Bundesbank justly informed the media that for security reasons they will not disclose how the transfer would take place. This is a fair position to take given the extraordinary amount of gold that will be moved.

Now, because the Germans have agreed to and set a time frame of 7 years for the movement of the gold back to their own housing facilities, the usual conspiracy theorists that I will refer to herein have used this news to try to justify their cry that Germany’s gold is not there. That is, the US doesn’t have it. These sites claim that the Federal Reserve has leased out the gold which is why the transport of all this gold is going to take until 2012.

The theory launched by the perma-bull/conspiracy sites is centered on the purely speculative idea that the FED and other central banks partaking in this “scheme” are going to have to buy the gold that is being repatriated or risk failure. In the case of another conspiracy theorist, the potential for other nations to jump in front of Germany and ask for immediate delivery is now probable also leading to a run in gold. In their eyes, they feel that 7 years was agreed to so that they can “come up with the gold” or risk having to go onto the open market to purchase it leading to a massive run on gold and a spike in price.  The truth is, gold barely moved on this news, as it shouldn’t have given that this is not a gold price moving event.

The usual suspects are at it… 

King World News today interviewed Stephen Leeb who told KWN that the reason Germany is only getting small portions of their gold sent to them over the years is because the gold is not at the Fed. They also brought in Keith Barron to spread unfounded insinuations that Germany’s entire gold hoard at the Federal Reserve may already be gone.

Harvey Organ’s blog for example is speculating that Germany knows full well that there gold is gone and that they are giving time to the USA to mine gold and send it off to Germany. Of course he sensationalizes the news by telling his readers that because Germany is agreeing to repatriate a portion of its gold over 7 years, there is nothing to stop another nation from claiming all of their gold immediately. This nothing but unsubstantiated fear mongering. Harvey does a great job grabbing all the sensational headlines trying to formulate an argument to support the theory that this is a watershed event.

ZeroHedge has jumped on board also speculating “Germany first then the Netherlands”, nothing new for a site whose reputation was built on sensationalizing news and spinning it to suit their own beliefs.

GATA is suggesting that because it is taking 7 years to move a small portion of Germany’s gold there just has to be something fishy going on. Let us be clear, the Bundesbank doesn’t need 7 years to repatriate some of its gold. It has agreed to do the transfer over a 7 year period.

Turd Ferguson has joined in by questioning whether or not the gold is there.

Jim Sinclair and James Turk have also weighed in on the issue spreading the same rhetoric as the aforementioned sites.

Another sensationalized headline appears at Marketwatch.com claiming “Germany Wants Its Gold Back” They reported:

“The move to reconsider gold storage and repatriate their gold is a clear indicator that the Bundesbank are thinking about Germany’s economic future, away from the euro, and how gold may play a role in it,” said Jan Skoyles, head of research for The Real Asset Company, in emailed comments. Read Skoyles’ analysis of reasons why Germany plans on repatriating its gold.

“The fact that they are planning to gradually repatriate their gold from the New York Federal Reserve not only raises questions about their trust in the Fed to manage their gold holdings but, importantly, their faith in the U.S.’s management of the U.S. dollar and its future as a reserve currency,”

Where the Marketwatch article errs (intentionally or not) is in presenting the picture that Germany is gradually repatriating their gold making it seem that they are taking all of it back, making no mention that they still plan to store a considerable amount abroad, in fact, 50% of it.

What people need to understand is that this isn’t the first time Germany repatriated some of their gold.  They did so 10 years ago when they pulled 13% of their gold holdings out of London who, unlike Paris and New York, charges the Bundesbank for storage. As reported in the Telegraph, “The gold was purportedly withdrawn because London was charging €500,000 a year in storage costs. The Bundesbank said part of 930 tonnes brought back was melted down for checks, and "not one gram was missing".

So let us turn to the official Bundesbank statement: (emphasis added is mine)

By 2020, the Bundesbank intends to store half of Germany’s gold reserves in its own vaults in Germany. The other half will remain in storage at its partner central banks in New York and London. With this new storage plan, the Bundesbank is focusing on the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centres abroad within a short space of time.

The following table shows the current and the envisaged future allocation of Germany’s gold reserves across the various storage locations:

31 December 2012 31 December 2020
Frankfurt am Main 31 % 50 %
New York 45 % 37 %
London 13 % 13 %
Paris 11 % 0 %

To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold from New York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by 2020.

The withdrawal of the reserves from the storage location in Paris reflects the change in the framework conditions since the introduction of the euro. Given that France, like Germany, also has the euro as its national currency, the Bundesbank is no longer dependent on Paris as a financial centre in which to exchange gold for an international reserve currency should the need arise. As capacity has now become available in the Bundesbank’s own vaults in Germany, the gold stocks can now be relocated from Paris to Frankfurt.

In reality, despite the big controversy by the gold conspiracy theorists about this news, Germany will continue to store 50% of its gold abroad after 2020.  37% of its gold in New York, down from 45%, an 8% difference and 13% in London while removing all of its gold from French storage.   Unless you are trying to support a meme or conspiracy theory, who really cares why it has agreed to make this move over a 7 year period?  Germany was dammed if they chose a 7 year period or an immediate delivery.  Here’s why;

  • The fact they announced they will make this move over a period of 7 years has now been used by the aforementioned conspiracy theorists as a basis to spread their speculative meme that the gold isn’t there, something they’ve been arguing for years.
  • Alternatively, if Germany claimed immediate repatriation, it is fair to suggest (given their history) that these same outlets would have started sensationalizing that an imminent currency failure was imminent which would be (in their eyes) the only reason for an immediate transfer.

You can’t win with these guys! That’s the bottom line. They would have found a way to spin this story to fit their meme. It happens every time.

What should be noted is that Germany isn’t reclaiming all of its gold. People reading the above noted articles might come to that conclusion given the writing styles therein.  The reality is that  even after they complete the transfer at the end of 2020, half of its gold will remain abroad with approximately about 37 percent remaining in New York. The Bundesbank does not plan to move any gold out of the Bank of England, where it will continue to store 13 percent of the total.

All in all, The Bundesbank will repatriate 674 metric tons of gold from vaults in Paris and New York by 2020 to restore public confidence in the safety of Germany’s reserves nothing more, nothing less, and the fact that they have decided to make this transfer over a 7 year period has nothing to with the fact that the gold isn’t there or because they don’t trust foreign central banks. (In fairness, the argument can be made that the Germans have never trusted anyone). The reality is that is absolutely no evidence, I repeat ZERO, that implies that any of their gold is missing or unavailable despite what you may read elsewhere, especially on sites that prey on fear, sensationalism and on “pumping” the said metal. These fairy tales and unfounded speculative claims that imply that most of the Western world’s gold has been leased out and is probably in the private hands in India or China are completely UNFOUNDED.

I’ve already pointed out the two reasons Germany wants more of its gold back (also listed in their official press release).  It’s not because they don’t trust the central banks currently storing their gold as has been unjustly speculated by some in the media and in the Twitter world. With respect I think that trying to draw assumptions that the move has everything to do with a lack of trust central banks may have in each other is irresponsible journalism.

I admit that it is a perfectly fair position for the Germans to continually evaluate and put in place scenarios for a life without the Euro.  Anyone reading me for the past 2 years knows my stance on the Euro and that it is a dying a slow death and whether it survives depends on many things.  It is also completely fair for Germany to take the position that it’s their gold (their asset) and they should be able to store it wherever they wish which in their eyes is on home soil.

History tells us that Germany’s gold was primarily kept in the US on account of the physical threat from Russia. this threat no longer exists. In fact, much of the reasons why Germany stored its gold abroad don’t exist anymore. I see no issue with Germany wanting some of their gold back. It’s their asset and their property after all. I don’t see why the conspiracy sites have drawn the sensational line in the sand calling this a “watershed moment”.

Anyone making claims that the Federal Reserve doesn’t have the gold and trying to argue that this has to be why they agreed to a 7 year transfer window is making those claims for one reason only and that is to keep the gold price suppression meme moving forward and to sensationalize the news to get their readers to think that this is going to cause an explosion in the gold price.  This is irresponsible.  It's about generating sexy headlines that will attract readers and keep the conspiracy alive. Nothing more.

Unfortunately, in this world of ours where technology rules and people trip over each other to get the scoop on any news item by throwing out 140 character blurbs via Twitter on any news event there is one very important step missing; DUE DILIGENCE or the complete lack of it.

On that point I note that not one of the aforementioned agencies even remotely mentioned that German auditors have already audited the gold and confirmed it was all there.  The New York Times, citing Bundesbank member Carl-Ludwig Thiele reported the following:

Mr. Thiele denied there was any mistrust. “We have no doubts about the integrity of other central banks,” he said. “We’re not aware of any irregularities.”

The government auditing agency, the Bundesrechnungshof, called on Bundesbank officials in a report to Parliament to conduct an inventory of the thousands of bars of German gold that are stacked in foreign vaults.

Mr. Thiele said that he and other Bundesbank officials personally visited the German gold abroad and that he was satisfied that it was all there.

Bank officials went one step further

At a packed news conference, Bundesbank officials attended by armed security guards demonstrated on Wednesday how they tested the bars for quality and authenticity. No two bars have exactly the same weight and purity, so each must be assessed separately.

These statements imply that their audit is complete. As such, any claims that the gold isn’t there is simply unfounded rhetoric.

I was raised and educated to follow facts, not speculation.  Shame on anyone trying to spread the “gold isn’t there meme” while completely turning a blind eye to the statements quoted in the NY Times. Am I the only one who finds it curious that Mr. Thiele’s statements have been entirely omitted in any of the aforementioned conspiracy reports of this news?

I can go on and on about the usual suspects and how they merely regurgitate each other’s rhetoric to spread the same conspiracy but by now,  educated readers know who those sites are and will be able to spot that they are all at this very moment regurgitating the same shock and awe catch phrases that are now so common on the gold conspiracy world. 

Remember, it is the gold conspiracy theorists that claim that the world is on the road towards a de facto new gold standard and possibly a new gold-backed currency from the IMF. The central banks aren’t making these statements. Preparation is merely wise, not dispositive of whether or not the event will ever occur.  Germany was smart, along with Italy, as being the only countries not to sell any gold when the gold price was depressed and as a result have some of the world’s largest gold reserves. Just like any gold bug will tell you to store your own gold in case you need immediate access to it, the same applies to governments like Germany who want to have immediate access to their gold.  Whether it takes 7 years to move or 7 days is irrelevant because under either scenario the usual suspects would have still created a conspiracy about it as they will with any news item involving gold and silver.

Fed’s Beige Book Shows Modest Recovery

The FED released their beige book this afternoon and within it lay clues about modest recoveries in residential real estate and also indicated that growth improved in 10 of its 12 regional banking districts, while levelling off in one region and slowing in another. Rising home sales helped lift home prices.  The report also noted that auto sales increased but consumer spending was only up slightly in some regions but remained flat in others. Manufacturing showed improvement in half of the reporting districts and overall the report showed increased economic activity since the last report.

Discussing The Federal Reserve’s Minutes–Additional QE Seems Likely

I had been fairly negative on the need for additional quantitative easing since the earlier part of the year given that my views were centered around the fact that the first two rounds of easing did nothing to really spur the economy and that the first rounds of easing were to help the stock market and not the average American still struggling with overwhelming debt, unemployment and an inability to feel any sort of improving conditions.  We all know that easing is really meant to help the stock market you see because that is what the Federal Reserve is really concerned with.

I had written a lot in the early part of the year that I didn’t expect any easing until at least the fall and today’s FED minutes confirm my earlier hypothesis that if we were going to see any additional QE measures then they would more likely than not take place in the latter part of the year.  Today’s FED minutes essentially confirmed my earlier thinking.  The Federal Reserve was quite clear on their language in the minutes released today.  Reuters summarized the minutes as follows:

The Federal Reserve is likely to deliver another round of monetary stimulus "fairly soon" unless the economy improves considerably, minutes from the central bank's August meeting show.

While the meeting was held before a recent improvement in the economic data, including a stronger-than-expected July reading for U.S. employment, policymakers were pretty categorical about their dissatisfaction with the current outlook.

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," the Fed said in minutes to its July 31-Aug. 1 meeting.

There is always a tug of war so to speak about what the Federal Reserve wants to do and what the market seems to tell us.  We continue to hear over-inflated hype about any signs of improvement in the underlying economy yet the Federal Reserve refuses to take the QE option off the table.  This leads me to think that this is really about FED Chairman Bernanke’s addiction/desire to ensure that the stock markets don’t lose any of their gains, despite a 12% increase in the year to date general stock markets.  We all know that continued double digit growth in the stock markets, while perfectly acceptable for “long” investors, is not sustainable and hefty stock market returns often lead to bubbles.  This is a concern that is somewhat lost on the Chairman because notwithstanding the stock market’s performance, he seems quite intent/focussed on ensuring that those gains continue to materialize.  It is in a sense, a double edged sword. Do you let the market act “freely” or do you have Central Bank support which is in no way allowing the market to move on earnings anymore but instead allowing it to move on the back of monetary influx, (printing money to support stocks which clearly don’t need it at the moment).

I maintain my sentiments from earlier this year that implied that we were going to see a round of easing before year end.  Whether or not the market really needs it is irrelevant because it appears it really isn’t about need anymore but what the Federal Reserve’s Chairman wants.  That, in and of itself, not letting the markets act in a true “free market” sense is frightening because it has the potential to further inflate bubbles that never have happy endings.

Gold spiked on the release of the minutes and the stock markets paired their losses.  As always though, we must wait to see whether these gains are knee jerk reactions or sustainable break-outs that can lead to further gains.  Have the recent gains in the stock market and the gold market already priced in expectations of additional easing? Is more to come?  My thoughts are that if you trade this news, wait until the initial knee jerk reactions and confusion subsides.  Trade a calm market, not a market that is still trying to make heads or tails of the news.

In my view, a confirmation of a renewed bull move in silver will require the price to convincingly break out above the $32.00 level. We are still a ways off from that so we need to assure ourselves that this isn’t just a counter-trend bounce in a continued downward move.  As a longer term silver bull, and investor in junior exploration/mining companies I’m not complaining about these moves. My hope on the long side is that they continue.  The real question though that is still unanswered is how much of this recent move has already priced in additional easing. 

The Federal Reserve Still Won’t Commit To Further Accommodative Easing

Following two days of meetings the Federal Reserve still will not accommodate the market’s wishes for further quantitative easing.  As a result, markets that rely on FED actions or at least have relied on those actions for the past year, talking about gold and silver here, are finding it difficult to move higher with gold shedding $10.00 an ounce in today’s action followed by silver losing another .18 cents per ounce.  If anything over the past month and a half, it appears though that the highly volatile speculation in those markets has abated thus making the market easier to navigate.

The Fed is still embarking on a continuation of operation twist until the end of this calendar year but did not speak about further easing although Fed Chairman Ben Bernanke did indicate that the Federal Reserve remains at the ready should market conditions warrant accommodative measures.  The market opened higher but failed to hold any gains as market participants were faced with the reality that the Federal Reserve will not be backstopping the markets for the time being.

Market participants are watching words very carefully and playing with semantics.  The last Fed meeting gave us the Fed stating that they would "regularly review the size and composition of its securities and will adjust the holdings as appropriate to promote a stronger recovery”.  The language used by the Fed this time was that they were “prepared to take further action”.  However that was the same language used 2 months ago so I fail to see why traders would hang their hats on any false hope at the moment.

I remain convinced that we will not see any major market action until either closer to or following the elections set for this fall.

On the overall economic picture, the Fed said that they expect growth of 1.9 to 2.4% down from the previous 2.4-2.9% estimate.  Growth for 2013 was also trimmed to 2.2 – 2.8% from the previous 2.7 to 3.1%.  My question is that with positive growth still on the horizon, the Fed is really at a stage where they aren’t forced to move into the markets in any aggressive way.  As a result, it is my view that the metals will still continue to trend downwards perhaps breaching my previously noted levels on their way to much lower levels.  Remember they rose because of QE and without additional easing in the mix, I fail to see what the catalyst for further upside movement is.

Reuters Reminds That The FED Stands Ready To Act If Needed

Reuters reported that Federal Reserve policymakers were still  open to the idea of further easing measures to stimulate the United States economy.  This isn’t a surprise though in fact the timing of the news is puzzling as this is exactly what we heard when the last minutes were released.  That is, that the FED remains at the ready and would be willing to entertain additional easing if the conditions warranted it.  This news I guess just serves as a reminder to the public to not fret about the markets because if they drift low enough Ben and his friends will be at the ready.

Several members of the Fed's policy-setting committee "indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough," minutes from the April 24-25 meeting said.

Minutes from the Fed's March meeting had said "a couple" members thought more stimulus might be needed.

Members also cited strains in global markets stemming from the banking and debt crisis in Europe, and the potential downside risks from contractionary U.S. fiscal policy.

About half of participants in the April meeting said that exceptionally low rates would be appropriate at least until late 2014. One thought the Fed should extend its current bond-buying program, known as Operation Twist, that is due to be completed next month.

FED Stands Pat Gold and Silver Move Down

The FOMC statement made no mention of any additional easing stating that the economy is moderately expanding with the labour market.   Regardless of your views of the general economy, today’s news keeps my short term view on both metals in tact, and that is bearish.  Things can change on a dime however when the press conference takes place a little later today (approximately 2pm EST). As for now, no "QE Infinity".  I just don't see an immediate catalyst for gold and silver to spike higher.

Make That 6 Straight Months Of Real Estate Price Declines

You can sell all the homes you want but the real key is that prices across the nation dropped again for the sixth straight month. Notwithstanding the fact that there have been more sales in the overall market, that is, properties changing hands, people are still reluctant to bid up these homes and the market will only bear lower prices. This is, to me at least, a true sign that people buying homes are still sceptical of the overall ‘recovery’ and as such, are willing to let go of their homes for whatever the market will bear, which at the moment, continues to be less than the prior month.

The Standard & Poor's/Case-Shiller home-price index shows that prices dropped in February from January in 16 of the 20 cities it tracks. The index saw the steepest declines in Atlanta (down 17.3%) , Chicago and Cleveland. Prices rose in Phoenix, San Diego and Miami. They were unchanged in Dallas.

Keep in mind as I said that the index reported one of the best winters for sales in five years … but that refers to volume … not price. Homes, supposedly the biggest indicator of the economy are still declining in price. The Standard & Poor's/Case-Shiller home-price index is not at its late 2002 level. Home prices have fallen 35 percent since the housing bust.

The news brought to us courtesy of AP also tells us that home builders are laying plans to construct more homes in 2012 than at any other point in past 3 1/2 years. You have to be wondering what the heck they are thinking about when there still remains such a glut of homes on the market that can be had for a pretty good reduced price. Sure, additional permits will result in more jobs and boost construction, but what good is having a new development sit empty if people aren’t going to buy the homes because for the most part, they still aren’t working or working for less wages than they were even 5 short years ago.

All bubbles come crashing down hard and the Real Estate bubble is a prime example. Expect it to stay depressed for a while longer as households continue to struggle with personal debt. Expect the Federal Reserve to factor this into their discussions when they discuss their next policy move.

Europe’s Woes Impact Global Markets–What Will The Federal Reserve Do?

mag-04economy-articleLargeOn Sunday April 15 I wrote that the next phase of the Eurozone saga is now upon us and pointed to Spain as the next big domino to wreak havoc on financial markets.  Last night’s selling in Europe and today’s in North America solidified my views that the problems are starting to poke their heads out from under the sand again, one at a time and will do so at a quick pace.  Last night’s news was a bit different though as it didn’t just focus on one country.  The entire European Union is about to join in on this line dance of economic and political woes. 

We have instability to contend with on the political fronts of France and Holland and perhaps other nations whose opposition governments will use tough talk against austerity to woo voters. 

We had the fall of the Dutch coalition government.  The Dutch prime minister Mark Rutte, who is considered one of the Eurozone’s "hardliners" on the issues concerning fiscal discipline, dramatically quit in the wake of his coalition's refusal to accept Europe's debt pact. Snap elections could be called as early as June.

France too is seeing uncertainty in their presidential race with Francois Hollande's beating Nicolas Sarkozy in the first round of the French presidential election. Hollande has vowed to renegotiate the fiscal pact that including a 3% of GDP deficit limit.

The markets quickly sold off and ran .. where? To the safety of the United States dollar. Selling was broad-based in Europe with Germany dropping more than 3.5%.  Yield’s on member nation bonds rose, most notably that of Italy and more importantly for Spain who saw their yields click higher again to dangerous and unsustainable levels (5.98%)

The ECB is again coming under increased scrutiny by member nations as well for failing to embark on a US style money printing operation (QE) and as a result, namely in France, they are shifting blame to the ECB for the inevitable recession sure to grip most of Europe (Spain by the way is officially back in recession).

Government oppositions across Europe are playing the austerity card knowing full well that this is the only way they are going to muster up support from citizens hit hard by the massive austerity programs implemented across Europe.  You can bet that the opposition in the Netherlands will make this front and centre on this issue in their platform.

The economic data was poor. Numbers released from the combined purchasing managers' index survey by Markit registered a weaker-than-expected 47.4 for the Eurozone in April, consistent with a quarter-on-quarter contraction in GDP of around 0.3%. A figure of below 50 on the index = contraction. The manufacturing index fell to 46.0 from 47.7. This represents the weakest reading of that index since the middle of 2009. Service sector output also fell to 47.9 from 49.2 continuing to contract but more slowly than the other two indexes.  Germany had some particularly disturbing numbers as well that showed output fall to a 3 year low.

And if you are wondering about sovereign debt, well that can is now in sight after being kicked down the cobblestone road.  We got news that Ireland's debts rose by 13.1% last year and Italy ended 2011 with the second-highest debt at 120.1% of GDP. Spain's rose to 68.5% from 61.2%. Cutting to the chase, all of Europe except Estonia, Luxembourg, Slovenia, Slovakia and Finland  had debt within the Eurozone's self-imposed limit of 60% of GDP.  What a mess Europe is surely in.

The question going forward now is does the European Central bank officially impose easing measures that more closely resemble those put in place by the Federal Reserve or does it try to stave economic crisis using current methods which have obviously not helped the problem?

When the dust settled, stocks fell along with the Euro and precious metals and the US dollar rose on safe haven buying.

We now await what Federal Reserve Chairman Ben Bernanke has to say over the next couple of days.  Will he try to stave off collapse by hinting about more easing or hold the line on past statements? What will Europe’s move be to stave off financial calamity?  These are all factors we should get firmer answers on over the next days to weeks.

The FED Doesn’t Appear To Be Interested In Further Easing

The hints have been there for months for those that took the time to read the headlines beneath the headlines.  The Federal Reserve is less intent on its desire to conduct any further quantitative easing and as a result, the gold and silver markets are reflecting this in their price action following the release of the FED’s minutes this afternoon.

the appetite for another dose of quantitative easing, so-called QE3, has waned significantly.

The March meeting minutes noted "a couple" of members thought additional stimulus might be needed if the economy loses momentum or inflation remains too low for too long.

That contrasted with a much broader characterization in January, when the minutes cited a few members as seeing a possible need for additional easing before long, and others thinking stimulus might be required if economic conditions worsened. (Reuters)

Then again, I have written about this before.  Further easing would imply that the United States economy is falling off a cliff yet, remember that this is an election year and it would serve you well to consider that the power in charge wants to show the people that the plans put in place have indeed helped the United States get out of the worst financial crisis to grip the nation since the Great Depression.  Further QE at this juncture would imply a failure on behalf of the Federal Government and (Federally appointed chair, Ben Bernanke) to tackle the crisis.

I’m not ruling out further QE at some point in the future, AFTER the elections, but for now, it is a safe bet to put QE talk away for now.  As a result, precious metals may drift until some other event ignites them.

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