The U.S. Federal Reserve gave a somewhat mixed message yesterday (Wednesday) that seems to have confused Wall Street. The DOW was stable in the morning as most investors were anticipating the Fed would maintain its $85 billion monthly bond buying policy (i.e. continue quantitative easing or QE). The Fed's statement in the afternoon did indeed confirm the continuation of QE, but it also stated that the U.S. economy was showing signs of "underlying strength". Many investors thought this was the Fed hinting that it will be tapering its QE policy perhaps sooner than expected (maybe as early as December). Because it had been assumed that any tapering would not begin until March of 2014, the ever skittish DOW dropped sharply in the afternoon about 100 points but then recovered a bit before closing the day with a 60 point loss. The market continues to be indecisive today, dropping this morning, then recovering by mid afternoon, but dropping again and losing 73 points at the market close. It is hard to say how long the DOW will be spooked by this "hint" of no more "candy" (QE) from the Fed (it is Halloween, after all), but momentum in the DOW, S&P 500 and NASDAQ continues to be strongly bullish, so this "Bernanke effect" may just be transient (as it often is). I am still on the sidelines of the broad stock market.
It appears that the Fed's statement yesterday may have spooked the gold and silver markets as well. Why? Because continued QE means the government continues to create money out of thin air, which devalues the dollar and increases the value of gold (and silver). Gold investors may therefore see the spectre of QE tapering as bad for gold prices. (I might add here that even if the U.S. Fed suddenly becomes fiscally responsible and tapers -which I don't think is going to happen- there are other more important global reasons for gold and silver prices to rise now, and the long-term bullish picture in precious metals would remain intact.) In terms of technical analysis gold has not dropped below the area of support at $1300-1310, although silver has breached the $22 level I wanted to see hold (closing at $21.95). Silver tends to be much more volatile than gold and I am therefore going to use gold's behavior as the key indicator here for stop loss. Momentum signals in gold and (especially) in silver charts are still strongly bullish today. Also several financial analysts I follow are recommending today's prices as good buy spots for the precious metals. For these reasons I am continuing to hold my long position in both gold and silver today.
The U.S. Dollar Index spiked up today, which is in line with the above discussion of how QE tapering (or in this case the "suggestion" of QE tapering) is good for the U.S. Dollar. A rising dollar is usually bad news for gold (although this isn't always the case and the dollar and gold can rise together) and this at least partially accounts for gold's drop today. That said, directional momentum in the U.S. Dollar is still strongly bearish, so this rise may be just a short-term reaction to the Fed's statements. There are many financial analysts now who feel the Federal Reserve is just bluffing when it hints at tapering QE and that they do this to create an image of being fiscally responsible when in fact they have no intention of tapering as they know this will collapse the stock market. If this is true, we can count on infinite QE to help propel gold and silver prices into a long-term upward trajectory.
Crude oil charts continue to give mixed bullish and bearish signals. A support level seems to be developing at $96 which suggests a rally from here, but other ambiguous signals make this market too difficult to call at the moment. Still out of this market.