Gold remains defensive, having slipped below the $1300 level in overseas trading. Ongoing recalibration of Fed rate hike expectations — in the wake of Yellen’s comments last week — have pushed the yellow metal through technical levels. This week’s options expiration was likely a contributing factor as well.
However, I maintain that Fed policy (and guidance) hasn’t really changed at all. Everything Yellen said in her inaugural presser was completely consistent not only with the Fed’s own projections, but with most private sector forecasts as well.
Nonetheless, I remain skeptical that we’ll even get to that point — let along on that specific timeline — for all the same reasons espoused by Cleveland Fed dove Pianalto today. Pianalto said deflation remains a “big risk” and long-term joblessness remains a significant concern. The bottom line is that the Fed is failing to achieve its mandates.
So why tighten then? I think the answer lies in the phrase “declining efficacy”. The Fed was failing to achieve its mandates even when it was buying $85 bln in assets per month, so why not scale back and slow the growth of the ol’ balance sheet?
U.S. data were mixed again this morning. The final Q4 GDP print was 2.6%, below expectations of 2.7%. Initial jobless claims fell last week by 10k to 311k, beating expectations. U.S. NAR pending home sales fell 0.8% to 93.9 in Feb, on expectations of +0.2%, prompting Jim Rickards to tweet:
Existing home sales fell for 8th straight month. The #Fed is totally out on a limb with their happy talk forecast. Taper pause by summer.
Our own Mike Kosares noted yesterday that banks that have been prop-trading in certain securities (including gold) are going to have to square up before the Volcker Rule goes into effect on April 1:
It could get to be interesting as we move into the end of the month. The Volcker Rule which limits banks’ speculative investments (including gold) goes into effect April 1, 2014. There has probably already been quite a bit of adjustment to bank portfolios, but those who have held out will need to make their moves before the deadline.
Perhaps, in the wake of the run up in gold since the first of the year, the banks were long. However, as Mike points out, “big trading banks traditionally have occupied the short side of the paper gold market.” Once the prop-trades are flushed out, this could be a net positive for the gold market moving forward.