There seem to be two primary opposing forces engaged in a tug of war and the metals markets are caught in between.  On one end of the rope, we have the Fed and (to borrow from JPMorgan’s Michael Cembalest) “QE Forever.” On the other side, we have some continuing mediocre global growth news as well as commodity specific downward pressures in crude oil. We’ll do a bit of a link-fest this week to provide for plenty of reading material while we wait for replacement refs.

What drives us higher:

  •  Practically every developed nation Central Bank on the planet is engaged in some sort of market intervention to drive yields and currencies lower
    • The Bank of Japan announced on 9/19 that they will increase their asset purchase program by 10T yen to 80T Yen. That’s about $1Trillion USD. While the US is upset about this (“How dare you devalue your currency while we attempt to devalue ours!”). $1T is about 17% of Japan’s 5.8T GDP. That’s a pretty similar proportion to our totals in the US (probably ends up being $2.5-3T on a $15T economy).

    • Keep in mind that the most recent Fed announcement had no end date and pledged to keep rates low for long until at least 2015.
  •   ETF buying and speculative longs in futures continuing to grow. It’s a retroactive measure, but a rollover in this trend would be significantly negative.
  •  Euro crisis
    • Keep in mind that any Euro weakness, however is a mixed bag for metals because of their USD denominator. Simply, weak Euro à strong dollar à commodities lower. If you’re into the whole brevity thing.

What drives us lower:

  • Technical resistance at $1800 gold and $35 silver. Anytime we cross or get near these numbers, a large number of sellers step into the futures markets (attributed largely to overseas)
  • Decent housing data. Starts in August were 512k, beating estimates again. Better numbers à ‘maybe the economy is improving!’ à ‘The Fed may take away the stimulus drug one day!’
  • The Saudis are overcoming any middle east tensions for oil prices by cranking out 10MM bpd. Also rumors that higher prices (and a looming election) would spur the administration to release from the Strategic Petroleum Reserve. The Saudis (and the incumbent) would like to see Brent Crude prices below $100. For weeks it has been hovering around $115+ and now trades around $110.

 

I’d also highly recommend reading Dallas Fed President Richard Fisher’s speech to the Harvard Club of New York City. If I had a trading card for any Fed member, it would be his. I’m starting a fan club.

 

Long term gold trading:

 

 

Crude has been pulling us lower for most of the week, but this effect may be muted going forward. Note that I am using Brent Crude here instead of WTI, which I normally use. Brent is the more significant contributor to gas prices because of some mechanisms I’m not qualified to discuss. Any of you Energy guys out there, I’d appreciate a crash course in the various premium plays in crude oil. (Blue = EURUSD, Silver candles = silver)

 

Gun to my head:  Higher. After a few days of paused trading without giving much back, I’m expecting a bump. Don’t fight the fed yet. As I’ve mentioned before, the best model for long term USD gold prices is real interest rates and the Fed is actively keeping those well in the red for a LONG time. Markets are notably forward looking, so the prices will react before the Fed does, but it’s VERY early yet.  Choppy trading short term until we pick a real direction, but my bias is up.

Feel free to forward. Give us a call with any trades or notes. Fall is here, happy trading.

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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