A lot about nothing? Settle 1691.4

As I often point out in this blog, nobody effects the gold market like Bernanke. Yesterday morning, following Janet Yellen's comments from the night before, many were expecting hints about pending QE. I must admit, I was in the camp of the disappointed. Were our expectations too lofty?

With the benefit of hindsight, I suppose yes is the answer. But in looking back, I think the expectation of a QE hint, or slightly more dovish language in his speech was reasonable. The counter commentary was that this was not an FOMC announcement, it was simply a speech. A stoic Fed Chairman would not give away secrets or hints, as that would be political. Ok I get that. But lets be real, it's a political job at this point. The stock market has already had a good chunk of its ear bitten off, and serious risk looms across the globe in the coming weeks. So it made sense to me. Hint at QE, and if the stock market prices it in, doing it might not actually be necessary. Because that is after all what QE has become; a tool to make stocks go higher. It doesn't spur lending or borrowing. Fortunately I didn't take too many classical economic theory classes in school, because such classical assumptions are meaningless if not misleading in a zero interest rate environment. I do however know that banks make money by borrowing short, and lending long. Well, with a yield curve as flat as a coffee table top, I am pretty sure we do not have to ask questions about why QE doesn't work.... at least that is, doesn't work to stimulate the economy.

Gold, as has happened in the past, sold off violently when there was no hint at QE in the Fed Chairman's remarks. Shortly after the number stops got triggered around 1615 causing gold to sell off in a single print all the way down to 1603. We then proceeded to make a low of 1579.6, rallying all the way back up to 1593.0. Then, in the overnight session, we had another sweep in the futures. This time, from we dropped nearly 25 dollars in one fell swoop down to 1556. This took place at around 10:30 pm, and while I was not watching it, I was told that it was a 7000 lot order (a relatively huge order... particularly at that illiquid time of night) that sent gold tumbling. Gold recovered from this sweep, and closed higher by just over 3 bucks on the day. In markets where you see consecutive prints 16 dollars away and 25 dollars away from each other, the risk of putting on positions becomes far greater.

Finally, I want to point your attention to the below chart. It is a weekly chart of Gold (August futures). Notice how tight of a range we've been in? With all the intra-day swings we have seen, it is easy to forget that gold has not really moved at all. Sometimes when your so caught up in the day to day life can seem a little crazy. On longer term chart however, we can see that gold is consolidating.

Previous posts mentioned how gold had generally been range bound between 1530 and 1599, and needed to break one way. It looked like we had broken out to the upside last Friday on the bad employment news, but this Thursday's sell off brought us right back into the top of that range.We are seeing solid daily ranges, but looking at the weekly closes of late, we see that we haven't moved all that much.

Have a great weekend

Ben