(5:00 pm EDT)
The U.S. Federal Reserve concluded its two day meeting today, and as most analysts expected, left interest rates unchanged. Many analysts expect one more rate hike this year (in Dec.), and if the economy stays on track, another three hikes next year (we shall see). More significantly, the central bank announced today that the Fed would begin unloading $10 billion of debt from its so-called balance sheet consisting of piled up purchases of Treasury and mortgage-backed securities it acquired after the 2008-2009 stock market crash to boost the economy with its unprecedented program of Quantitative Easing (QE). It would appear that the Fed is trying to give up its addiction to manipulating the economy with bond purchases and low interest rates. We need to take note here, however, that all of this depends on the economy doing well from this point on as well as financial markets remaining stable and relatively bullish. If the economy and/or markets turn sour, I would not be surprised to see the Fed slow or stop interest rate hikes and maybe even oil up the money printing presses and begin another round of QE (or perhaps a program under a different name with the same purpose of propping up a disintegrating economic system).
The DOW shuddered a bit after the Fed's announcement (What, no more support from the Fed!!!???) but then recovered and closed the day with a healthy 41 point gain. The Dec. contract NASDAQ 100 INDEX (E-Mini) chart that I referred to in Monday's blog, however, closed with a 17 point loss and still hasn't exceeded its 6,026 high from Sept. 1. We therefore still have a risk of the broad stock market turning down until that high is broken. Let's stay on the sidelines for now.
This signal of fiscal responsibility from the Fed today boosted the U.S. Dollar Index and pushed gold and silver prices down further. We need to watch carefully now to see if this will be just a temporary reaction to today's Fed announcement or the start of something more serious. Gold closed a bit below our $1,300 target for a bottom, and silver closed a tad below our $17 target. Friday could be a major turning point for gold, but we could also see a major reversal late next week into the first week of October for both metals. I am tempted to buy over the next day or two, but we need to be cautious because both metals are making new weekly lows so there is no intermarket bullish divergence signal. Directional momentum in silver also changed today from nearly 100% bullish to mixed bullish and bearish. (And so did the gold and silver mining company indices HUI and XAU. Mining companies are often bellwethers for the metals themselves so this may be a bearish warning). Next week may be a better time to buy these metals, as long as prices don't drop too far down. We don't want to see gold below $1,270 or silver below $15.70. Still on the sidelines of gold and silver.