Fed Drives Final Nail into QE Coffin, Metals Markets Bleed

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Double, double, taper and trouble. Gold slides and silver tumbles.

The Federal Reserve just drove the final nail into the coffin of Quantitative Easing, and that spooked gold and silver markets. On Wednesday the Fed announced the final taper of its massive bond-buying program. That was expected. But the Committee’s assessment of the U.S. economy came in more upbeat than many investors had anticipated. That sent the U.S. Dollar rallying and metals prices retreating.

Gold prices fell nearly $20 on Wednesday and bled another $13 on Thursday and is down $30 more this morning. Gold has not only breached the $1,200 level but sliced through the key $1,180 level as well. On this Friday morning, gold trades at $1,165 per ounce, down 5.5% for the week. It looks as though the yellow metal will finish the month of October below the major support level lows put in earlier in the month.

The technical picture for silver looks decidedly worse after prices plunged more than 3.5% yesterday and another 3% so far this morning to fresh new multi-year lows. Silver prices currently trade at $15.98 an ounce and are now putting in a weekly decline of nearly 7.5%. Quite honestly folks, this is a bloodbath. There’s really no other way to put it.

We won’t try to candy-coat this scary market. It is what it is – the most brutal bear market in decades. But we would suggest that you not let fear guide your investing decisions. History suggests that fear-inducing markets do ultimately create the best buying opportunities. This holds true for stocks, real estate, and precious metals.

Despite the carnage in the paper price-setting futures markets, opportunistic buying in the physical market remains strong. Here at Money Metals Exchange, we’re processing high volumes of orders for our most popular silver bullion products. Pre-1965 90% silver coins are becoming scarcer, and premiums are on the rise as a result. But we have plenty of other silver and gold bullion products available at low premiums for immediate delivery.

The U.S. Mint announced that it’s sold nearly 60,000 ounces of gold American Eagle coins for the month of October. Even before the final tally comes in, that’s already the highest monthly sales total since January. It also represents a 21% increase from the number of gold ounces bought by investors in October of last year.

Meanwhile, the International Monetary Fund reports that major world central banks continue to accumulate gold in a big way. Russia led the way in September, adding another 1.2 million ounces to its stockpile.

Industrial commodities including copper found some strength this week. Platinum and palladium, which are tied heavily to automotive demand, also held up relatively well. Despite the carnage in gold and silver, platinum is down just 2% for the week and palladium is actually showing a gain of about 0.5% for the week as of this Friday morning recording, proving once again to be an incredibly resilient metal in the face of major selloff by its cousins gold and silver.

In the near term, it appears as though the U.S. stock market may be headed for another spike high on the heels of a great deal of optimism that the Fed has fixed the economy and successfully ended QE. Of course, the Fed hasn’t actually exited the markets or even begun to do so. The trillions of dollars in government bonds and mortgage-backed securities it has added to its balance sheet since late 2008 are still there.

Many remain skeptical that the Federal Reserve will be able to return its balance sheet to normal levels or raise rates without triggering another financial crisis. Among the skeptics is a name you may find surprising: former Federal Reserve chairman Alan Greenspan. In a recent talk to Washington insiders at the Council on Foreign Relations, Greenspan said that the Fed’s bond buying program has failed to generate improvement in the real economy. He also warned that as the Fed moves closer to raising rates, it will likely unleash “significant volatility in the markets.”

So, how can investors protect themselves from Fed-induced market volatility? Greenspan himself now suggests gold as the ultimate hedge against dangerous policies conducted by central bankers and governments. Given his easy money tenure as Fed Chair Greenspan’s comments this week have us all questioning this seemingly bizarre world we now live in.

At some point, the demand for physical gold and silver will overwhelm the supply that can be brought to market at prices that are below all-in mining costs. As we reported in recent days, at least one silver mining company is refusing to sell a large part of its production because silver prices are ridiculously low. Other companies are simply cutting back production and shutting down exploration activities.

Eventually, a constricting supply will force the markets will turn. And they will turn in a big way. Until then, hang in there folks on this Halloween weekend, try to avoid getting “spooked”.

Well that will do it for this week’s Market Wrap Podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for depreciating dollar…with speed, with accuracy and with top notch service. Have a great weekend everybody.