Gold and Silver Outlook 10-29-14 – Midday Report

The Fed has spoken and as I wrote in yesterday’s Current Thoughts that the Fed won’t do anything.

Specifically I said;

My guess is the Fed will NOT tip their hand tomorrow and QE will come to an end, but I do think that when the minutes come out in a couple weeks, it will show more discussion on whether they ended QE too soon from some of the members. This could be temporarily bullish for gold then, but I don’t see a real catalyst for it to move higher. Long time readers know where I think it’s going before we get the nice move higher.

What Will the Fed Do?

I just can’t see the Fed doing anything unexpected just yet. They want people to believe that all is well. Durable goods report and many other economic reports show otherwise despite the consumer confidence. The consumer is always the last to know.

The Fed is hoodwinked into thinking the economy is doing just fine and that inflation will pick up. The Fed has been trying to push inflation to 2% but has fallen short 28 straight months. They think unemployment has recovered with the rate dropping to 5.9% but can’t compute that this number does not include those who are not counted and those who are forced to take part time jobs as described in the U-6 report.

U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.

This number sits at 11.8%, twice the number the Fed believes in.

Did the Fed take a look at yesterday’s durable goods report?  Have they seen this chart for Home Purchase Mortgage Applications?

 Source Bloomberg

Does the Fed even realize the failure of QE?

Interest Rate Outlook

The Fed says it will keep rates low for a considerable time. They have to!

From Bloomberg:

Market Outlook

Eighty percent of economists in a Bloomberg survey predicted the Fed would continue saying it’s appropriate to hold the target interest rate near zero for a ‘‘considerable time.’’ The central bank has held its short-term interest-rate target at zero to 0.25 percent since December 2008.

But can the Fed control interest rates? Rates on the 2, 5 and 10 year treasuries all rose after this latest Fed announcement albeit they are still quite low. CNBC talking heads were speaking of a rate hike in the future and the economy improving. Wishful thinking and careful what you wish for CNBC!

The Fed vote to end QE was 9-1 with the lone dissenter being Nararayana Kocherlakota.

Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.

Dollar Still Strong

I have said that the dollar, one of my indicators, gives us an idea of where gold might go and many who read what I have written here know I have been dollar bullish for some time. While this goes against many of the die hard gold believers, it can’t be ignored that this is putting pressure on the price of gold. People simply believe in the story of the Fed. I don’t ignore it.

Miners: Look Out Below

All of the ETFs I have been speaking about here, GDX, NUGT and JNUG broke their 52 week lows today. I said they would and they have and that JDST would be a good play as an alternative. JDST broke above $22 today and is fast approaching $23 a share.

The miners will be a good play at some point and bounces will come along the way. But my call for lower lows in gold and silver still stands and this will bring miners down with it.