Markets embrace Fed relief, dump gold
The Dow is up 114 as traders buy on hopes interest rates won't rise quickly. Gold is off for a 4th straight day and may have more to drop.
But gold (-GC) slumped for a fourth day in a row and was trading below $1,200 an ounce for the first time since August 2010.
Gold settled in open-outcry trading at 1,211.60 an ounce, down $18.20. It had briefly fallen below $1,200 before the close and traded again under $1,200 in late electronic trading.
Silver (-SI) slipped 5.4 cents to $18.53 an ounce.
Both metals have been clobbered this year: 27.7% or more for gold and 34.6% for silver. Gold is now off more than 36% from its 2011 peak of about $1,900 an ounce. It's worse for mining stocks. Hecla Mining (HL) is down 76% since its 2011 peak. Newmont Mining (NEM) is down 61% since its peak.Gold could fall further, Duke University professor Campbell Harvey told Kitco News this week. He puts gold's fair value -- an average over time -- at about $800 an ounce. So the potential is for more declines.
Gold's decline is partly due to a recognition of low inflation pressures and, at least in the United States, a stable economy that has taken the risk of uncertainty out of the equation.
That's a reason for the stock market's rally on Thursday as well. The Dow Jones industrials ($INDU) finished up 114 points to 15,024, its first close above 15,000 since June 19. The Standard & Poor's 500 Index ($INX) added 10 points to 1,613, while the Nasdaq Composite Index ($COMPX) rose 26 points to 3,402.
The Dow has risen 365 points in the last three days. That works out to 2.5%, which is what the S&P 500 and Nasdaq have risen as well. How long this current rally will last is may well depend on when (or if) the Federal Reserve starts to raise interest rates.
Bill Dudley, the president of the Federal Reserve Bank of New York, told a press briefing in New York Thursday that "a rise in short-term rates is very likely to be a long way off" even if the Fed slows or halts its big bond-buying program. That mirrors Fed Chairman Ben Bernanke's projection that a rate increase won't occur until mid-2015.
In fact, interest rates were lower on Thursday. The 10-year Treasury yield fell to 2.483% from 2.539% on Wednesday and 2.653% on Monday.
While the major averages are likely to finish higher for the week, June could end as the first losing month for the indexes since November.
The major averages are still carrying major gains for the year: 14.7% for the Dow and 13.1% and 12.7%, respectively, for the S&P 500 and Nasdaq. Those gains are so big that many market analysts don't think the pullback that began after May 22 is over.
Friday may be the last day to get a true reading of the U.S. market's condition. Next week will see trading volume fall daily until Wednesday when U.S. markets will close early. On Thursday, markets will close for the July 4 holiday. Friday will be a normal trading day.
Thursday's rally was set off by Dudley's comments as well as decent economic reports.
Consumer spending rebounded in May following the largest drop in more than three years. Household purchases, which account for about 70% of the economy, rose 0.3% after a 0.3% fall in April, the Commerce Department said. Incomes grew 0.5%, more than expected.
More Americans signed contracts in May to buy previously owned homes than at any time in more than six years. Claims for unemployment benefits decreased by 9,000 to 346,000 last week, indicating employers are slowing the pace of firings.
Twenty-eight of the 30 Dow stocks were higher, led by Hewlett-Packard (HPQ), Microsoft (MSFT), Home Depot (HD) and Travelers Companies (TRV). Johnson & Johnson (JNJ) and Coca-Cola (KO) were the only losers. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
A total of 407 S&P 500 shares were higher. The leaders were cable operator Cablevision Systems (CVC) and J.C. Penney (JCP). Paychex (PAYX) and Air Products and Chemicals (APD) were the laggards.
Meanwhile, 79 Nasdaq-100 ($NDX) stocks were higher, with Seagate Technology (STX) and software maker CA (CA) the winners. Paychex and Sears Holdings (SHLD) were the laggards. The index gained 13 points to 2,907.
Apple (AAPL), however, fell $4.29 to $393.78, its second close in a row under $400. Its shares are off 26% this year.
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The ideas that there is no inflation pressure and that the economy is stable/risk-free are wishful thinking.
The apparent absence of inflation is due to a COVER-UP by the Commerce Dept, which manipulates the Consumer Price Index. Japan, in buying $500 billion in new Treasuries this year is certainly eating some of our inflation. China is no longer so cooperative as it buys American assets to ca****elf out. Ordinary people feel the pressure of rising cost of living. Energy, food, health care and higher education have been going up in price for years.
What is worrisome is the way that big money investors wait for a Fed official or President Obama to make some kind of monarchal announcement, then they take the proclamation at face value and buy or sell assets accordingly. This means that big money investors allow themselves to be led around by the nose by LIARS!
The federal government has been robbing bond investors blind, giving them as little yield as possible while they pay sky-high prices. Then the government tells them how lucky they are supposed to be because the Treasury bond is SO-O-O RISK FREE!
That's right fools!!!
Keep buying paper and believe in the fed; I'll put my trust in gold and silver, and when the bottom DOES fall out of the market, I'll be glad that I didn't invest in PAPER.
The fed can't keep inflating forever without consequences, and I see them coming down the road.
Do you REALLY believe that the fed paper is going to be worth more than gold, silver, or even copper?
Well, let's see what's going to happen within the next five years
Where is the guys who used to talk about gold all the time..Finkelstein?
And Havey, why would you want Equities to correct another 10-15% ?
How is that going to help Mom&Pop investors?
Or people wanting to retire, that have just gotten their 401s back in order...??
Seems Inflation, is almost "in the eye of the beholder."
If you aren't buying much you really wouldn't notice it..
Probably this next quarter(this one) they will say it's down, just so we won't get an SS raise.
Food and Energy are not usually calculated, because of volitility; up.down,up,down...
And Energy or the cost of it, is added into the production of everything we buy...Downstream.
Yes food cost more, sizing or portions have decreased, a half gallon of ice cream now 1.75 qts.
Fuel at the pumps,jumps up or down 5%-15% in a matter of days,weeks,month..How do you figure?
Housing going up some places, down others..Gold,silver down; Is jewelry ??
Building supplies not stable;Sales,no sales...I know Pet Food is up, and smaller bags,cereal same.
Fertilizer and seed or plants up for raising Gardens or farming...
Price for meats in Stores, all over the map; Depending on quality.
So what can you really base Inflation on...?? I know I wouldn't want the job of figuring it out.
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These hot movers could rise by double digits in coming months.
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