Gold bugs are hurting today as the yellow metal continues to slide downward with speed printing 1373 per oz., -22.9. There has been a lot of talk that the U.S. Federal Reserve will tapper off or stop the massive liquidity pumped into the market. However, it has been made clear that if unemployment remains above 6.5 percent, and the recovery is still moderate, that the easing will continue. Even with the global reflation fears, Europe posted a Core CPI YoY of 1 percent (1.5 percent in April) and the U.S. Core CPI YoY posted 1.7 percent (1.9 percent in April). This disinflation, though, seems to be the cause of a global lack of demand rather than a return to normal supply given the globally weak manufacturing and PPI data. This global uncertainty may be the life-blood of gold, but it is certain that the Fed will continue – to some extent – is easing program.
Philadelphia Federal Reserve Chair Charles Plosser is sending mixed signals as he openly talks about potential negative long-term impacts of quantitative easing, but when at the Swedish Central Bank he noted:
“…. the Fed has provided “forward guidance” on the future path of interest rates. Specifically, it has indicated that as long as the outlook for inflation over the one- to two-year horizon does not move above 2.5 percent and inflation expectations remain well anchored and as long as the unemployment rate is above 6.5 percent, the Committee expects to keep the federal funds rate at essentially zero. The Committee has also indicated that it anticipates that the highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
Gold is an uncertainty just as much was the Fed’s plans to wind down it’s massive 85B/month purchasing plan. Gold is technically overextended to the downside with RSI at 21, but gold should continue to chop downward and test the April low of 1321.5; potential upside target is 1440-50. We may see some recover Sunday night as Ben Bernanke speaks this Saturday.
Key daily resistance at 1445 and 1418 with support around 1375 and 1359 per oz. Overall outlook for gold still remains bearish until inflation says otherwise.