Some interesting sideways action in the gold market today in anticipation of the “taper or non-taper” decision by the federal reserve. When the much heralded announcement hit the news services, helicopter Ben slowed down the pace of economic stimulus by about $10 billion per month beginning this January – while promising to keep interest rates low for the foreseeable future. You might have thought that decision would have been bad for the DOW but it reversed earlier losses and vaulted more than 200 points higher on the news.
It goes to show you how data driven markets are these days which is somewhat frightening given the dubious nature of data put out by governments and non-government agencies. But the market believes it and that’s really what counts.
Spot gold prices made a u-turn into positive territory before the Fed decision, the expectation being perhaps that the current level of tapering would continue. If the latest program of quantitative easing has done nothing for gold, could the elimination of easing have the same negative impact or perhaps be positive? It seems counter intuitive to say the least! At some point all the money floating around in the global financial system will ignite inflation and that time might be sooner than most people think.
That leaves open increased prospects for a global economic recovery as a possible driver of gold prices in 2014 and beyond which is what the latest Fed action suggests.
Here’s an interesting interview that appeared on Bloomberg today between Scarlet Fu and Bloomberg Industries’ Kenneth Hoffman who obviously has some understanding of the gold market and what drives it. His commentary is a welcome change from the usual talking heads who tend to repeat the same tired mantra from one day to the next.
What continues to puzzle everyone including me is why more attention isn’t being paid to the supply-demand side of the gold equation (i.e. all the gold going into China) which is bound to impact the market at some point. My feeling is that we might well be near a tipping point for gold and for the broader commodities complex. When the market sentiment changes, it could shift in a hurry given how downtrodden the commodities sector has become. Copper, a bellwether of global economic activity, is usually a good indicator to watch and the metal has climbed about 5% off its December low.