Posts
Gold
Is Surging Tonight, And One Analyst Says It's Now In The Sweet Spot
10
July, 2013
So
the story of the day is this: Bernanke came out and sounded
dovish this evening,
for reasons which we've explained here.
From
Kitco:
Of
course, gold has been getting massacred for the last couple of
months, so it's coming off of a weak spot, but still a nice night
for gold owners.
In
a note out tonight, Mike O'Rourke of JonesTrading argues that gold
is now in the sweet spot, and that Bernanke has lost any tapering
credibility:
We
don’t believe the Chairman’s intentions have changed.
Regardless, the Chairman’s credibility is once again damaged.
If the Dollar breakdown continues, it will be a sign that the market
believes the Chairman has again lost control over policy. The
asset clearly in the best position in such an environment is Gold.
After such a notable correction in the past 9 months, the precious
metal once again becomes a very attractive global asset if monetary
policy in the largest economy of the world spins out of control.
What Bernanke Really Said,
Or How The Chairman Just
Lost Control Over Policy
Again
10
July, 2013
From
Mike O'Rourke of Jones Trading
Fed
Put Reiterated, Credibility Gone Again
Overall,
it was a quiet trading day until the 2 pm release of the June 19th
FOMC minutes. The release prompted instantaneous sharp moves in
several assets that quickly reversed. June 19th was a press
conference meeting. Could anyone really divine anything from 6 week
old minutes considering the Chairman clearly shared the FOMC view
that day? Nonetheless, the day’s real fireworks occurred after
hours as the Chairman’s Q&A comments at a speaking engagement
sent the Dollar crashing and risk assets (Gold, Oil, Bonds and
Equities) flying. Yes,
Bonds are a "risk asset" these days.
Having
watched the press conference, we
think nothing notably new was said to indicate a policy shift.
When asked about the policy outlook, the Chairman said, “I
think you can only conclude that highly accommodative monetary policy
for the foreseeable future is what's needed in the U.S. economy.”
This is not new considering the Fed has promised to keep rates low
until 2015 and the Fed has repeatedly stated that reduced asset
purchases equates to additional easing. Most
of the Fed Chairman’s remarks were consistent with the statements
he made at the press conference.
The
Chairman’s statement that caught our attention and that we could
see exciting markets was "And
I guess the final thing I would say in terms of risks of course is
that we have seen some tightening of financial conditions, and that
if, as I've said and as I said in my press conference and other
places that if financial conditions were to tighten to the extent
that they jeopardize the achievement of our inflation and employment
objectives then we would have to push back against that." There
is nothing like a clear affirmation of the “Fed Put” to create
another round of risk taking and aggressive behavior in the markets.
The simplistic interpretation is that the
Fed will never take away the accommodation, because the central bank
cannot let markets “tighten,” which is a euphemism for go down.
In
a simple stroke, the Fed Chairman has undone the work of his
communications of last month. The
credibility that began to emerge from the June 19th press conference
is gone. There
is a large segment in the investment community that believes the
Chairman cannot exit this policy, and his statement about not letting
markets tighten only strengthens their case. The
Chairman has returned the markets to the point where he has lost
control of monetary policy, again.
Early
in the Q&A when asked whether, with the benefit of hindsight, he
would have done the press conference differently he answered no. He
was willing to stem the risk taking behavior to avoid a larger
problem in the future. "…where
we don't provide any information -- it's very likely that more highly
levered, risk-taking positions might build up, reflecting, again,
some expectation of an infinite -- infinite Asset Purchase Program."
In addition, he continued to refer to QE as a policy tool in
temporary terms - "The
first asset purchases, we have thought about, and I have frequently
described as, providing some near-term momentum to the economy …
We've made progress on that, but we still have further to go. But
again, that's the objective of the asset purchases is to provide
near-term momentum to try to get the economy moving forward more
quickly."
Despite having said he was glad the press conference had the result
of reducing risk taking and referring to QE in short terms, the
market only heard the Fed Put. Thus,
the Chairman has reiterated the “Tepper Trade.”
We
don’t believe the Chairman’s intentions have changed. Regardless,
the Chairman’s credibility is once again damaged. If
the Dollar breakdown continues, it will be a sign that the market
believes the Chairman has again lost control over policy.
The asset clearly in the best position in such an environment is
Gold. After such a notable correction in the past 9 months, the
precious metal once again becomes a very attractive global asset if
monetary policy in the largest economy of the world spins out of
control.
