December 18: Gold and Silver End Lower in Mixed Trade

The Metals:

Gold edged down to $1227.77 just before noon EST before it jumped up to $1244.19 just before today’s fed announcement, but it then dropped to as low as $1216.21 after the announcement and ended with a loss of 0.99%. Silver slipped to $19.664 before it rallied back to $20.258, but it then fell back off again and ended with a loss of 0.55%.

Euro gold fell to about €890, platinum lost $10 to $1335, and copper remained at about $3.35.

Gold and silver equities saw modest gains for most the day, but they then turned back lower in the last hour of trade and ended over 1% lower.

The Economy:

Text of the Fed's statement on the taper MarketWatch

Fed cuts bond-buying but stresses easy policy Reuters

Fed Cuts QE Pace to $75 Billion on Labor Market Outlook Bloomberg

U.S. mortgage applications fall in latest week: MBA Reuters

Tomorrow brings Initial Jobless Claims, Existing Home Sales, the Philadelphia Fed, and Leading Economic Indicators.

The Markets:

Charts Courtesy of http://finance.yahoo.com/

Oil remained modestly higher after the fed’s tapering decision.

The U.S. dollar index ended decently higher in mixed trade after the fed announcement.

Treasuries fell as the Dow, Nasdaq, and S&P jumped higher after the fed both tapered its bond buying and pledged low interest rates for an even longer period of time than previously thought.

Among the big names making news in the market today were FedEx, Lennar, and Kraft.

The Commentary:

“We finally got the big "T" word today. The announcement by the Fed of a $10 billion cut in the bond buying program was greeted by the markets with the usually volatility as the HFT crowd had a field day picking pockets but once the dust settled down a bit and some saner heads prevailed, traders were able to actually think about what the Fed statement means.

It looks to me like the Fed basically gave the market a near perfect bowl of punch. Cut back on the bond buying program and dispel some of the criticism it has been receiving from some quarters about keeping the program at full size for too long while simultaneously sounding an EXTREMELY DOVISH TONE on the interest rate front. In short, they managed to convey that they are still concerned about DEFLATIONARY forces reasserting themselves but are comfortable scaling back some bond buying as they monitor that situation.

The reaction in the gold market was fascinating to watch as traders tried to figure out exactly what to think about this new state of affairs. The initial kneejerk reaction was to sell on the announcement of a taper; however, I believe the dovish attitude towards interest rates eclipsed any fears of a slowdown in the liquidity injection mechanism. That allowed gold to catch a bid and keep above that now incredibly significant chart support level at $1220.

Basically the Fed left the door open for a period of ultra low interest rates for an extended period of time. One thing I noticed was that they seemed to play with the unemployment number threshold a bit ("well past 6.5%"). That was something new to me.

What really matters to traders however is not the news so much as the reaction to the news. The equity markets are looking at the announcement of a $10 billion/month taper as evidence that the US economy is actually recovering enough for the Fed to slightly scale back the QE. Also, the Fed's benign view on inflation, means that equities remain the "GO-TO" sector for gains.

Given that view, and the fact that there is still going to be $75 billion/month of bond buying, it was a go on all cylinders for the US stock markets. From what I can see, the Fed under Ben Bernanke has managed to pull off nothing short of a financial miracle. They conjured into existence nearly $4 trillion of new money without completely debasing the Dollar or generating widespread inflationary outbreaks. In the process, they generated an historic rally in the equity markets, a rally which I might add, now looks as if it will continue.

With the decision to taper finally out of the way, with the uncertainty surrounding that decision clarified, investors are now breathing a sigh of relief and going back to what they have been doing for all of this year, buying equities. And why not? - the Fed has given them the green light by restating the "Bernanke Put" is still in effect should economic data justify additional monetary action. Stock investors have never had it better. It is rather remarkable.

That brings us back to gold - in my view gold's progress from this point forward will be completely dependent (as it has been in my view) on whether or not the market believes that inflationary pressures are now more of a danger than deflationary pressures. The Fed reiterated that inflation is consistently running BELOW its 2% benchmark. What they want is the Goldlilocks scenario - inflation not too hot, and not too cold, but just right.

I mentioned last week or the week before that in a post, that the Fed might actually WELCOME a HIGHER GOLD PRICE. Why? Because as long as it does not soar out of control, but manages to stay firmer perhaps within a broad range, it would signify that inflation is not a problem nor is deflation. I believe the Fed would be concerned if gold prices were to experience a sharp, PROTRACTED move lower just as much as they would be if it experienced a sharp, PROTRACTED move higher.

If this is the case, we might have finally found a lasting bottom in gold. That does not mean it is going to enter a strong uptrend in price ( see my thoughts above) but rather that the forces of deflation and inflation might now be balanced, at least in the view of the FOMC. I still believe that gold will underperform the broader equity markets unless we see some sort of black swan event.

It was interesting listening to the outgoing Chairman's comments during his presser. He mentioned as a deflationary force falling crude oil prices but also expressed concerns about the potential for rising health care costs and the possibility of rising wages. I came away with the idea that the Fed is going to remain heavily dependent on the financial/economic data. They are very concerned about the deflation issue, that is beyond dispute.

Let's see how things look when the dust settles for the day and then make some assumptions from that point.”- Dan Norcini, More at http://www.traderdannorcini.blogspot.com/

GATA Posts:

Join GATA at its reception following the Vancouver conference Jan. 20

GATA chairman interviewed by Finance and Liberty and Financial Survival Network

Indian gold import curbs to stay despite easing trade gap, official says

Gold price suppression doesn't bother South Africa's government

Paul Mylchreest: Western investors will be wrong-footed again when gold turns

The Statistics:

As of close of business: 12/17/2013

Global Gold ETF Holdings

[WGC Sponsored ETF’s]

Note: Change in Total Tonnes from yesterday’s data: SPDR subtracted 2.085 tonnes.

COMEX Gold Trust (IAU) Total Tonnes in Trust: 166.81: -0.64 change from yesterday’s data.

Silver Trust (SLV) Total Tonnes in Trust: 10,139.78: No change from yesterday’s data.

The Miners:

SEMAFO’s (SMF.TO) development update and Timberline’s (TLR) metallurgical testing were among the big stories in the gold and silver mining industry making headlines today.

WINNERS

LOSERS

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