A Gold-en summer

Happy summer and the living is queasy.

On Jan. 22 of this year gold hits it high at $1,302 an ounce on the news that the EU was going to begin its own quantitative easing program (EQE).

On March 17th the precious metal hit its YTD low of $1,149 an ounce believing that the Fed on the next day would announce the date for its next rate hike.

Since St. Patrick’s Day, the metal has come sideways in price and closed Friday at $1,180 an ounce.

Given the circumstances, where no rate hike will be in the offering this year, and EQE will continue throughout the year, it would seem the bias is to the short-term upside.

But that is generally not the case with gold. The metal defies technical charting due to what some charge is price manipulation.

As I have said earlier, I am told there is a federal probe by regulators of price manipulation along the lines of Libor, Forex and treasury note price rigging.

Coming up on Wednesday, we have the conclusion of a two-day Fed meeting and chair Yellen’s press conference, where she will dance the questions regarding a Sept. rate hike.

That being said gold will probably not move much in the first half of the week leading up to the meeting.

What the Fed may know at the meeting is that Q1 GDP  in its 3rd revision — coming out at the end of the month — could be -1.1%.

The estimate for Q2 from the Atlanta Fed is 1.9% based on robust auto sales. I will get into auto sales in the near future, but suffice it to say auto loans may be the new subprime, since these loans are not held up to scrutiny by regulators. The duration on these notes has also increased to 7- and 8 years on some models to keep the monthly payment manageable, with as little down as possible, thereby goosing sales.

So gold pricing the latter half of the week will depend on how much waffling comes out of the Fed on a rate hike later this year.

I am on the record as saying there will be no hike this year and I stand by it. The Fed could talk tough to have markets believe it is coming, but will not be able to pull the trigger due to lackluster growth and the IMF demand that the Fed hold tight until 2016.

That said, Yellen will need to be forceful in her outlook to manage what she sees as a market bubble in stocks. But she also has a bond market in revolt over her zero interest rate policy, which has taken the 10-year note to 2.4% yield last week as large investor sell of the debt.

That said, I look for gold to do a sideways trade perhaps moving up to $1,200 in the short term, while Greece stews over the summer with no true resolution.

The outlier for gold is if the Department of Justice, through the FBI come out with price manipulation against Deutsche Bank, JPMorgan and others large institutions in the commodity markets.

That could very well cause the price to spike $50 to $100 on the trading day its announced, meaning it will be a Friday afternoon announcement after markets are closed.

 

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