Thursday, May 19, 2016

Central bank jawboning: Gold smashed 3% despite the fact the Fed won't raise rates in June

An interesting thing happened in the markets yesterday, and is the crux of how the central bank uses rhetoric to manipulate paper markets without ever having to administer any actual policies.  On May 18 the Federal Reserve published their minutes from their April FOMC meeting (which was when they chose not to raise rates due to deteriorating economic conditions), and the records appeared to be almost the exact opposite of what Fed Chairman Janet Yellen reported during her speech on central bank policy one month ago.


Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June. - Zerohedge
Yet this was what Janet Yellen said just 22 days ago during her April speech (you will notice that the Fed minutes from that same date are in complete opposite of what Yellen reported).
"Economic activity appears to have slowed," despite job market gains, the Fed said in its statement. It also noted that household spending had "moderated." 
That tepid language greatly lowered investors' expectations for a June rate hike. Before the announcement, about 31% of investors called for a rate increase in June. After the announcement, expectations immediately dropped to 19%. - CNN Money
So how can the actual reporting from April 27 by Yellen be so different from the meeting's minutes and discussion on both rates and the economy?

Market manipulation.

The central bank knows that markets are controlled primarily by High Frequency Trading (HFT) computers that take news in their algorithms and instantly push through billions of trades to coerce markets in the direction they desire.  None of this has anything to do with factual data, but simply in lowering or raising price values for the dollar, gold, bonds, and stocks as they see fit.

And for two days now they accomplished their nefarious goal as gold was smashed over 3% and the dollar was artificially strengthened above 95% on the index.

But know this, the Fed minutes were not the sole catalyst for the crushing of gold and propping up of the dollar.  Prior to the meeting minutes, three central bank Presidents all went public on May 17 and jawboned that the June rate hike was a probability, and a tightening of credit was nearly a sure thing.

Yet if the Fed was now completely set on raising rates, why didn't they just do it yesterday rather than allude to waiting until next month?

Because they cannot raise rates anymore, and they have no intention of doing so.  The whole purpose of the press conferences were to manipulate the market for a few days, and suppress gold prices which were pushing the magic resistance levels of $1300.

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