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When Janet Yellen Talks, Why Do People Still Listen? – Ep. 188

  • The price of gold fell about $12/oz today; silver prices were down another .28
  • Both metals have been falling since recent new yearly highs
  • Gold, though is not very much below the highs
  • The real carnage has been in the mining stocks, particularly today; today was one of the biggest down days I’ve seen all year
  • The GDX index was down just over 7%
  • Some of the mining stocks were down 10% or more on a very small move in the price of gold and silver
  • In fact, we’ve wiped out the last 2 months of gains in the mining stocks
  • What is the catalyst for this?
  • Early this morning, around 8:30 – 9:00 New York time before the U.S. Stock Market opened
  • No news – gold was up 1 or 2 bucks…
  • All of a sudden a huge sell order hits and gold drops about 7 or 8 bucks on no news
  • Somebody decided to dump a lot of gold on the market, at one time and didn’t really care what the execution price was
  • Considering how large the sell order was, it didn’t really knock the market down very much
  • But the gold stock market was a different story
  • It kind of made me think that the rationale for getting gold to drop was the impact it might have on the gold stocks themselves
  • My guess is that a lot of people who were running with stops, that’s when you have an order to sell below the market to try to protect your profits
  • My guess is that they hit a lot of stops today in a lot of these mining stocks and maybe, some of the bigger players were able to buy more gold stocks based on the shake-out that was created
  • By a relatively modest drop in the price of gold
  • Meanwhile, the dollar didn’t rise very much today; the downtrend still seems to be firmly in place
  • What everybody seems to be focusing on is the Fed
  • People are worried about what Janet Yellen might say on Friday
  • The Fed’s Jackson Hole Conference gets underway tomorrow and Janet Yellen speaks on Friday
  • I guess the thoughts are: “Maybe she will say something hawkish.”
  • Maybe she’ll say the U.S economy is strengthening and the Fed is getting closer to meeting its objectives
  • And that a rate hike is possible in the near future
  • So what? That’s what she always says.
  • Now she’s not going to come out and say, “We’re raising rates for sure. We’re moving rates in September.”
  • The only thing she could say is that a rate hike is still possible
  • That is no different than anything that she has said in the past
  • So people being nervous about a possible unprecedented hawkish statement makes no sense
  • Even in Janet were to say she is raising rates in September and she followed through a rate hike
  • So what?
  • It’s not going to hurt gold and it’s not going to help the dollar
  • Expected rate hikes were already baked into the dramatic rise of the dollar in 2014-2015
  • Gold declined from a high of almost $1900 to a low of $1050 because it was discounting all the rate hikes that are never going to materialize
  • Even if we get one or two more, that is nothing compared to market expectations
  • Even if we get a couple of small rate hikes, even if we get to .75 or even 1%
  • That is still not enough to hurt gold or help the dollar
  • When are people going to figure out it doesn’t matter what the Fed does