FOMC Minutes Reverses Gold Bounce
Just beforethe minutes to the previously concluded Federal Reserve Open Market Committee (FOMC)meeting on August 1st were released this Wednesday, gold was in theprocess of back-testing the $1200 region in the December contract. The preciousmetal had made a nice $40 reversal from last Thursday’s over-night spike low at$1167 but was stopped cold at it’s 18-day moving average yet again. This fallingline of resistance, currently at $1210, has been keeping a lid onthe price each time it has been back-tested multiple times since the goldsell-off began to pick up more steam in early June.
The mainreason gold was benefiting from the U.S. dollar reversing its continuous risewas earlier this week when President Trump openlycriticized Fed policy for the second time. Trump has been attemptingto politicize the Fed since mid-July, as the U.S. central bank’s rate hikepolicy is detrimental to his economic policy (Please see my column from twoweeks ago, here.)
Since theU.S. President’s remarks on Monday, the worlds reserve currency began to slidetoward testing its breakout level at 95 on the Cash Settle Index. However, thegreenback began to bounce from its rising 50-day moving average, which also coincideswith the breakout level at 95, after the FOMCminutes were released at 2:00pm EST on Wednesday.
The minutesrevealed U.S. central bankers standing ready to raise interest rates again solong as the economy remains healthy. Although the Fed discussed raisinginterest rates soon to counter excessive economic strength, they also examinedhow global trade disputes could batter businesses and households. The lattercould be construed as a possible slowdown in future rate hikes. However, themarket chose to focus on the probability of two more rate hikes this year, sothe dollar began to rise which put an end to gold’s countertrend bounce.
Meanwhile,the latest Commitment of Traders report (CoT) showed the managed money shortposition (speculators) grew for the ninth consecutive week to yet anotherall-time record. The larger this position grows without selling down, the oddsincrease for a “sling-shot” ending to this decline once a bullish catalystappears.
A possiblecatalyst to reverse the gold tide may appear later today based on what FederalReserve Chairman Jerome Powell has to say in his speech from the annual globalcentral bank conference in Jackson Hole, Wyoming. He will speak on monetarypolicy in a changing economy at the start of the two-day conference, accordingto a notice from the Fed last week. Fed chairs in the past have used speechesat the Kansas Fed-sponsored conference to signal future U.S. central bankpolicy moves.
If thespeech mentions the Fed focusing more on the growing trade disputes beingharmful to the economy, any hint of the planned rate-hike possibly being put onhold at the December meeting could spark some short covering in theaforementioned record managed money short position. Nevertheless, it is myfeeling that a more hawkish speech, which focuses on the continuation of thedot-plot already in place, could escalate the dollar rally and continue topressure the precious metal complex into the weekend.
If thelatter scenario begins to take place later this afternoon, the waterfalldecline in the complex may not be over. As mentioned in lastweek’s missive, since the gold price has lost $1200 on a weeklyclosing basis, the $1140 region may be seen quickly. The levels to watch for apossible long-term bottom in gold is the December 2016 low at $1125. For theGDX, which has already made a close below its December 2016 low, a major bottommay not be in place until we see a $16 handle in the global miner ETF.
Caution isstill advised and a large cash position is recommended to take advantage ofsome very good entry points, which are beginning to appear in quality juniorswith proven management teams. If you need assistance in choosing the bestprecious metal juniors to invest during this capitulation sell-off in thecomplex, stop by my website at www.juniorminerjunky.com andcheck out the subscription service.
By David ErfleContributing tokitco.com
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