Metals traders have apparently thrown up their hands for the most part and resolved to get to the end of the year (or at least option expiry next week) at something resembling UNCH. As Friday’s tragedy dominated the headlines domestically, there has been little else to stoke volumes or volatility and we still haven’t even gone a week since the Fed increased their monthly purchases and announced the start of QE(x+1) when Operation Twist expires at year-end. They are apparently calling it QE4, but like many participants and, I believe the broad market, I have QE-fatigue. Monetary policy, especially with most every major Central Bank utilizing ZIRP, is NOT the problem. As I and many others have said before, low interest rates recycled among and between the banks doesn’t solve a fiscal and solvency issue and certainly doesn’t really inspire corporate Cap-Ex and consumer spending.

The Fed’s balance sheet growth has effectively stagnated for all of 2012 and these measures aim to resume the growth. The other interesting proclamation from the FOMC is that they will maintain ZIRP and QE until we reach 6.5% unemployment or 2.5% inflation (by their measure, notably). For the math nerds out there, that is $85 Billion per month in Treasury and debt security purchases every single month ($1.02T per year). I suppose that is what you do when you are trying to get the attention of a market bored by a standing $2.86T balance sheet. Again, all of this is great, but it doesn’t solve the issue of declining labor participation rates and the automation of labor.

Trading from the announcement was predictably volatile. A very quick uptick was met with prolonged selling and we have basically drifted sideways ever since. The dollar has declined against all trade parties, even the Yen, which is a bit surprising given that they just re-elected Shinzo Abe and the Liberal Democratic Party on a platform of basically promising to lower rates. The EUR/USD broke through some recent ranges and as of writing, is trading 1.319. On the option expiry note: 1675 Au and 30 Ag being key levels with most O.I.

Suggested reading:

The Only Chart That Matters: Last week’s trading. Note the quick spike, followed by a prolonged sell-off in response to the Fed announcement. In just the last 10 minutes, metals have begun to sell-off a bit. We’ll see if it catches a bid and turns around, but because of the small scale (left and right side), the trading seems more volatile than it is. Also be sure to note the anemic volumes across the bottom.

The other chart that also matters: Fed Balance Sheet over the last 5 years. Everyone has heard, “Don’t Fight the Fed.” (or DFtF) But what about “Risk Assets Get Bored When Monetary Policy is Used to Combat Structural Economic and Solvency Issues”. Otherwise known as “RAGBWMPiUtCSEaSI” Catchy, right?

Feet to the Flame:  End of the year can be very tricky, but I still believe net selling pressure will win the day with traders squaring books for financial statements and metlas generally trading as risk assets. Any resolution to the Fiscal Slope could be fodder for a move higher, but the broader currency dynamics of tighter fiscal implications is slightly beyond my reach. Lower.

- Brad

The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Bradley Yates and may differ from those of other NTR employees and affiliates. This information in no way constitutes NTR research and should not be treated as such. Further, the views expressed herein may differ from that contained in other NTR materials. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness, any pricing referenced is indicative and subject to change.


Bradley S. Yates

Bullion Desk- Senior Trader 

NTR Bullion Group, LLC

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