What gold and silver are telling us after the Fed’s announcement

Gold Today – The New York gold price closed at $1,329.30 down $26.10 on Wednesday in New York. Asia lifted it above $1,332 ahead of London’s opening. The gold price was Fixed in London at $1,327.00 down $19.00. In the euro, it Fixed at €962.641 down €4.521 as the dollar strengthened to $1.3760 from $1.3917: €1. Ahead of the opening in New York gold stood at $1,326.35 and in the euro at €963.917.
Silver Today – The silver price closed at $20.57 down 56 cents in New York. Ahead of New York’s opening, it was trading at $20.32.

Gold (very short-term)
We expect the gold price to reflect the stronger dollar, before recovering, today in New York.

Silver (very short-term)
We expect the silver price to reflect the stronger dollar, before recovering, in New York.

Price Drivers
Yesterday, there were no sales or purchases from or into the SPDR gold ETF. Their respective holdings remain at 812.776 tonnes and 166.14 tonnes. The absence of such sales tells us that the fall in the gold price on the back of Janet Yellen’s statement lacked substantive physical selling and was an adjustment for a stronger dollar. This means that dealers and speculators were moving prices down on their gut feel for the impact on markets of the statement. In such an atmosphere, gold prices should see such speculation evaporate and prices go back to more demand supply related levels. Meanwhile the Technical picture for gold continues to improve as the “Golden Cross” appears. This fall remains a good entry point for us. [For more on this, subscribe to www.GoldForecaster.com and www.SilverForecaster.com and visit www.StockbridgeMgMt.com to hold gold out of reach of potential confiscation]

The U.S. dollar strengthened by 1.7 cents against the euro at $1.3760: €1 as the implications for U.S. interest rates sinks in. Gold moved only a small amount in the euro [see above].
We believe the Fed took some brave steps yesterday as they gave solid indications that 2015 will see interest rates rise. The median forecast for fed funds rate is 0.25% by the end of 2014, 1% by the end of 2015 and 2.25% by the end of 2016. The rate forecast for 2015 and 2016 were higher than the earlier median forecast of 0.75% and 1.75%. This means prices for Treasuries will fall in line with these rate increases. These falls could well outweigh the strengthening of the exchange rate of the dollar, telling foreign Treasury holders that they should be selling now. Markets discount the future, so we watch markets do so now. Will this encourage Treasury buying and gold selling? We think not, as the Asian buyers of gold will not switch to U.S. Treasuries. Gold is a global market and Asia accounts for over 70% of annual gold demand.

But the most pertinent question is, “Will the U.S. recovery be damaged as markets raise interest rates discounting next year’s rate rises?” It has been clear for some time that even the slightest change in Fed policy, even future ones, would have a mercurial effect in one market or another.

Silver – The silver price is pulled back by 2.5% against gold’s 1.9% a characteristic of silver’s behavior.