December 20, 2014
This Week’s Monetary and Industrial Trends
More and more, analyzing the reasons why the gold market is doing what it’s doing seems to resemble a series of guesses, mostly based around monetary movements.
The massive stock market push of this past week was attributed either to Fed officials declaring they would be patient regarding interest rate hikes – or that they would lean toward hiking at some point. This latter interpretation was employed to justify a massive upside stock market move – because Fed officials were optimistic about the US economy.
Yet this doesn’t make much sense. The numbers the Fed looks at are regularly cooked by government econometricians, aren’t they? Employment is usually overstated and price inflation is considerably understated.
Would the Fed have come to the same conclusions if they were looking at legitimate numbers? And would traders have responded as they did?
What we do know is that the stock market exploded while gold actually stayed a bit on the down side mid-week. What does THIS tell us about the gold market? That gold traders decided that the Fed was optimistic about the economy and this weighed on gold?
Okay … but one has to accept that those trading gold professionally trust the government’s questionable numbers, or at least believe the Fed is going to act on those numbers.
In which case our whole analysis dissolved into a morass of what we might call “directed history.” Gold goes up or down based not on economic reality but on what the Fed THINKS the reality is.
Impact on Gold
As stated above, the big stock moves got lost in the gold market. Gold barely budged, though on Thursday, it reached an intraday high of $1213.86 before dropping back below $1200.
Presumably the downward movement of gold while stocks moved up had to do with a perception that the US was in a recovery mode – and that gold might cease to be a safe haven. On the other hand, the minute movement in the gold market would seem to indicate that traders were not convinced that gold either had – or had not – ceased to be a safe haven.
Some reports attributed downward pressure in the latter half of this week to profit taking. On Friday, gold was trading higher as of this writing.
Looking toward the tail end of 2014, one should likely assume a very thin market and anomalous trading. Some funds will try to take profits – selling gold. Fund managers may also wish to take stock profits and reallocate some of those profits to meals. The same may go for individual traders.
You can see this week’s price action here:
The Week’s Political and Military Trends
Monetary impacts were more visible when it comes to gold than military or political ones. The most noted political news of this past week had to do with a hack-attack on Sony Pictures that ended up shutting down an anti-North Korean comedy entitled “The Interview.”
This is somewhat strange, given that Sony has pulled the movie, providing us with two precedents: One, that a major corporation can be drained of significant secrets by “hackers” and two, that such a mighty corporation can be sufficiently intimidated to make a major change in its business plans.
One might think that such a major news item would sway gold but apparently not. Not even the slumping price of oil has had much of an impact, though one can make a case that the oil deflation has distracted Vladimir Putin from paying attention to Syria, thus increasing the possibility that the Islamic State will win its war with the current regime and manage to overthrow it.
If Syria and Iraq are fully destabilized by IS, the next logical target is Iran. With Iran destabilized, the Levant becomes a horrible, stewing cauldron of religious extremism and factionalism that would surely have an impact on the metals markets as a desirable safe haven – or maybe not.
Impact on Gold
The scenario we’ve explained above has yet to take place. In any event, we would tend to wonder what the impact would be on gold since nothing seems to move gold much against the dollar these days but Federal Reserve announcements. And that’s, well … weird.
There are, of course, other news items that might eventually play a role in influencing the price of gold relative to the dollar – though whether they count as political is questionable. Of course, every monetary move is political. In this case, the intention of BIS central bankers is apparently to minimize Switzerland as an anomalous pro-gold sanctuary.
Along these lines, the Swiss National Bank has now signaled that it plans to introduce a negative deposit rate. Kitco reports on ramifications as follows:
In a research note published Thursday afternoon, analysts at HSBC said that the introduction of negative interest rates, which is now in-line with the ECB’s monetary policy, could make the Swiss franc less attractive as a “safe-haven” currency.
This could have real implications for gold prices, if investors … find that the CHF no longer looks so attractive based on SNB actions, then investors may shift to other perceived hard assets. Gold would certainly count as one of these assets.
Gold Trend Summary and VESTS Analysis
There is so much about the gold market that remains questionable. We can only conclude that the concerns of gold traders are not for the most part concerns that we would arrive at in the course of day-to-day metals trading.
To alleviate our lack of insight, we often turn to our VESTS model that is based on the idea of analyzing elite priorities rather than free-market rationales.
In this day and age, markets are definitely influenced by such non-market items as “plunge protection teams” and BIS-coordinated central bank moves. What we continue to perceive based on such influencers is that gold is not on the menu for higher highs anytime soon, as it might interfere with the dollar’s dominance.
On the other hand, in the long term it would seem that the end game involves destabilizing both the dollar and Western economies in order to implement a more fully global currency and a true global central bank. Whether this end game is near-term or far-off is an open question.
- The Fed’s recent announcements set off a furious stock market rally but left the gold price against the dollar fairly untouched.
- The reasons for gold’s indifference to the stock market rally remains an open question: Either the Fed was signaling an intention to tighten rates in anticipation of a US recovery, or the Fed was merely treading water, in which case further inflationary measures might be taken.
- International monetary/political crises including the slump in the price of oil and renewed and expanded fight in the Levant didn’t seem to have much if any impact on gold.
- The action nonetheless remains firmly monetary and focused in particular around the Federal Reserve and its pronouncements, though perhaps moves by the Swiss National Bank could propel gold higher against the dollar. If and when that will occur remains to be seen.
As 2014 is winding down, the fraught relationship between gold and the dollar may not be taken as evidence of 2015’s trend. But whatever trend establishes itself in 2015 will have to take into account an increasingly fractious world. We might expect political and military events to have more of an impact