Yesterday’s FOMC

Interesting news from the Fed yesterday. If you didn’t catch it, it was the Bernanke and friends’ promise to do something. 

” The Committee will closely monitor incoming information on economic and financial developments and will (my emphasis) provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability”

In the June release, they just used the term “is prepared.” Now we all know that they got together and said “let’s change up the words.”

As for gold’s reaction, I’m not really sure. I guess it was waiting for Draghi to do something and we also have the monthly jobs report that always makes gold very volatile. So we’ll see. Gold miners, however, are showing signs of strength. 

Stick with the winners for the quarters to come: Agnico Eagle Mines (AEM), Pretium (PVG), Randgold (GOLD), New Gold (NGD). 

remember, email us with any questions. 

theinvestingoracle@gmail.com

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Thoughts on yesterday’s FOMC Statement

I think the Fed’s move to extend the twist until the end of the year was probably the worst thing that could have happened for gold bulls and today’s gold price is confirming it. Even though they left in the part where “the committee is prepared to take further action as appropriate to promote a stronger economic recovery…,” I doubt the Fed will make any moves any time soon.

When Operation Twist was first announced September last year, gold crashed and for the next two quarters, gold bulls were hoping for bad jobs numbers in anticipation of QE3. But one of my smart colleagues told me, the Fed won’t do anything for a while. They have to allow monetary policy to take place. Otherwise they’d lose a lot of credibility.

It made sense but I was still skeptical at the time.  Nonetheless, gold bulls would go through the two most disastrous quarters of everyone’s career (Obviously not all due to US monetary policy). In regards to QE3, I’m worried Bernanke will try to hold off as long as possible, and in doing so, all risky assets are likely to take a beating. Including gold. Including oil (which by the way is already at $80). Including stocks. I hope I’m wrong.

-Terry


Socgen: Buy Gold Before QE 3

Socgen is out with a research note this evening with trading ideas if  Bernanke announces a new QE program at tomorrow’s FOMC meeting. The banks number one idea is long gold. (That also happens to be the number one macro trading idea of TheInvestingOracle site and has been since 2008).

Socgen sees Gold closing the gap with the monetary base (see chart below) increases since 2007. If that happens, it sees the price of gold at $1900/oz. Lastly, if gold catches up to the monetary base from the 1920’s we are looking at…drum roll please….. $8500/oz.


FOMC Preview: Stock Market Pricing in a New QE

Today started the Federal Open Market Committee’s (FOMC) two day meeting on monetary policy. The meeting will conclude tomorrow afternoon with a decision on interest rates (unchanged), which will be followed by a statement of text (look for changes) and after that, the great Chairman himself, Ben Bernanke will give a press conference.

If you have followed my work from my time at Minyanville Media where I wrote the Active Investor, you know that for six months I have been predicting some sort of Quantative Easing to happen this summer.

It looks like that prediction will be correct as it seems some sort of QE will happen this summer.

Goldman Sachs believes that tomorrow the fed will announce some sort of new QE program. The investment bank, sees the possibility of the Fed buying MBS or just extended the Operation Twist.

The thesis is based on a June 6th speech on criteria needed for more QE by Vice Chairwoman Janet Yellen:

“[i]f the Committee were to judge that the recovery is unlikely to proceed at a satisfactory pace (for example, that the forecast entails little or no improvement in the labor market over the next few years), or that the downside risks to the outlook had become sufficiently great, or that inflation appeared to be in danger of declining notably below its 2 percent objective…”

It looks like all three criterions are close to being met, though not quite there yet. If Bernanke wants to stay ahead of the curve, it would make sense to announce some sort of intent to perform QE, at the next meeting (August I presume) if conditions continue to deteriorate.

If that’s the case, what will the new easing program be? .

What I think will happen is the fed may announce a perpetual easing program.  By that, I mean the fed will announce it will purchase treasuries, MBS, etc. at a clip of $50 bln to $75 bln per month. This is known, as a “flow” of purchases and it will allow the fed to react flexibly to quickly changing economic events. It also does away with the idea of QE 3-4-5, etc. As Apple CEO Tim Cook said, iPad 20 doesn’t sound that great. I would almost think of QE, like the fed’s ability to move short-term interest rates, as just another tool in the box.

Trading wise, if that happens, I would buy gold and lots of it. That said, I always like to see what the stock market is doing heading into the Fed and currently it has rallied for four straight days. This tells me that Mr. Market is expecting some sort of QE announcement tomorrow.

While the stock market is saying QE, the fixed income market is pricing in a operation twist expansion/extension. If this is the Fed’s plan, I expect a large sell off in the stock market.


In case you didn’t know AEM’s turnaround was complete

Good news out of Agnico Eagle Mines (AEM). Kittila in Finland is back to full capacity. It accounts for about 13% of 2012 production and was supposed to be down for 40 days as part of a scheduled maintenance plan, but AEM finished the job after only 18 days. 

The total number of days down remains unchanged for the year at 44 but they’ll likely see a better than expected second quarter. And don’t forget that any bit of credibility is a good thing in this beaten up sector. 

AEM’s 2012 1Q performance was the biggest sign the company had righted the ship after the company produced more gold compared to 1Q 2011 (when they had Goldex operating). All 5 mines produced record quarterly results. Things are going well for this company and you’ll see the stock break new highs and outperform its peers once more love returns to this sector. Image


Gold Reverses Benny’s Selloff

There’s one very important lesson when investing in gold: you will always get an opportunity to reenter.Image


Potential Coup Thwarted in Ivory Coast

Reuters reports last night a potential coup was thwarted in the Ivory Coast.

“All state institutions are hereby dissolved. All political activities are suspended. A curfew has been put in place until further notice … All land, air and sea borders are closed,”

Arrests were made and some documents were recovered. But nothing absolutely crazy as far as “crazy” goes in Cote d’Ivoire.

These are the things I mentioned when I previously wrote “Know your location.”

Off the top of my head, the companies I know with operations in Cote d’Ivoire are Randgold (GOLD) and Cluff Gold (CLF — London ticker). Randgold looks to be opening higher with the higher gold price. Makes sense because nothing really happened. But also this doesn’t surprise me because I’ve met Randgold management and CEO Mark Bristow is an impressive man. He and his management team are the ones you want in places like this.

-Terry Woo