Today came… and went. News ebbed and flowed. And markets moved. As we take a look at the day there is a great lesson for us; a lesson discussed briefly just a couple of days ago. Here’s what was said, in case you missed it:
“And now we have speculation coming out that QE3 is going to be announced Wednesday. Frankly, this is silly. The markets are maintaining their course right now. While it seems like they could tank any moment, they also seem to be showing some amazing endurance as well. Why would the FED announce QE unless things are turning down hard?”
As we comment on these things, our goal is simply to help our readers gain an upper hand in how they view the markets, and economics in general. Trading the news can cause incredible whiplash. And today was perhaps a textbook example of a major whipsaw.
As we discussed earlier, markets moved upward in anticipation of the Greek elections as well as today’s Federal Reserve announcement. Much of this was likely in expectation that QE3 would be announced. But an announcement that twist would be extended, while not nearly as exciting for markets, really was what was expected.
The markets were pretty flat, with a general fading, during morning hours. As the time for the 12:30 EST end of the meeting drew close, the fading increased. Then, upon the announcement that there was no QE, and extension of twist and continued zero interest rates, what happened? What would be the logical move for the markets?
Considering that nothing changed, logic would seem to dictate that markets would continue on with business as usual. Instead, as soon as the announcement came out, markets took a nose dive. With just that much information, what would be the logical observation? Oh, the markets expected QE or are unhappy with the results or somehow recognize that this decision would be bad for the economy or???
But, again nothing changed. There was no logic, other than fear perhaps. And this is what drives markets; fear and greed. Even more astoundingly, the markets then ran up for a new high within 30 minutes after the FED meeting. Now isn’t that logical?
Another slow bleed followed Ben Bernanke’s commentary, followed by another rally that brought the S&P 500 to a close of 1355.69, just 2.29 points from the open. So, what did the markets really think of today’s meeting and announcement? In the end, absolutely nothing.
What did the U.S. gold market think of the FED meeting? Gold bounced around today, finally resting 11 bucks down to close at 1606.90; a measly .68% loss. Silver proved a little more volatile, dropping a quarter and a penny to settle at 28.16; a .91% loss.
One trader I know said he was able to trade over a dozen times today, realizing some nice gains. There aren’t many who are capable of that. I’m certainly not one of them. And these trades aren’t based on fundamentals, logic, economics or any other real investment strategy. They’re based on reading the technical indicators and understanding sentiment.
For most of us, we have to rely on the big picture. We look at the economic outlook and underlying fundamentals to help us decide where to make investments that will preserve our capital well and bring in nice gains in the long run.
For the long-term focus, today was absolutely meaningless. There are times when decisions take place that have tremendous bearings on the long-term outlook, but they’re few and far between; sometimes years between.
So what does that tell us about precious metals? The dollar is still in trouble. Debt is still growing like weeds over a septic tank. There is no end in sight. This should continue to prompt us to accumulate all the metals we can on the dips. We might see prices go lower in the short-term, but metals continue to have a very long-term bullish outlook. That probably can’t change until our economy goes through a complete overhaul. Don’t hold your breath.
For your prosperity,
J. Keith Johnson
The Gold Informant