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.

By Charley Blaine Jun 27, 2013 7:11PM
Stock market traders © Photodisc/SuperStockStocks surged for a third day in a row on Thursday -- as traders began to worry a lot less about the Federal Reserve and the domestic economy offered more hopeful signals.

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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34Comments
Jun 27, 2013 8:20PM
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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!

Jun 27, 2013 9:42PM
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Only a complete and utter moron can say with a straight face that inflation is running at 1%. Fact: Health care premium increases are assigned a less than 2% total of the CPI formula. There is more, but that alone should tell you all you need to know about how phony the stats are. That, and your own day to day living costs. Usually it's the same morons who swear there is no inflation that also say there is no debt either.
Jun 27, 2013 7:49PM
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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.

Jun 27, 2013 8:03PM
Jun 27, 2013 9:37PM
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Trust in tangible items which are basic necessities for daily living, it is all that will matter when the markets and precious metals do eventually collapse. Making sure you have enough for at least a few months is essential. We're definitely headed in the wrong direction thanks to our useless clueless government and The Fed.
Jun 27, 2013 10:50PM
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Now's a good time to buy precious metals.  It will not be long before the dollar tanks and Kleenex tissues will be worth more.  There is no hope for the dollar as long as the Fed keeps printing them to try and sustain our 17 trillion dollar + debt and our government will not reign in spending.  It is only a matter of time and the whole dollar-based economy will be toast.  Anyone who thinks differently isn't thinking.
Jun 27, 2013 11:53PM
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Gold is a speculative metal, it has only a handful of uses...buy COPPER, which is in every building in the world, copper has thousand of uses.
Jun 27, 2013 8:04PM
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The bigger story here is the overwhelming nation-stopping influence of Wall Street. This is America, not some 3rd World bumpkin nation. You have to go. You will, sooner.
Jun 28, 2013 4:59AM
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No inflation ??Baloney the government inflation numbers are skewered food energy education TAXES health care are GOING UP while the  amount of what you get for your money  and low wages  are crunching us even more ,Stable economy???I If Obamas Immigration invasion is passed you will have 10-20 million more people here taking social services fighting for low wage jobs while the manufacturing and higher paying jobs are outsourced >This is a stable future??????
Jun 28, 2013 1:23AM
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Yathink,

 

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

Jun 28, 2013 1:50AM
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Took a lot longer for the gold bubble to pop than I thought it would.
Jun 28, 2013 9:56AM
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Inflation's benign of you don't eat or drive to work and you believe in BOS cooked numbers.
Jun 28, 2013 9:55AM
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You know what to do when the herd stampedes? Get the hell put of the way and then find a safer direction. The market has driven bond rates way to high and the Fed will fix that real soon. The economy is still anemic and BDC's and REIT's are paying huge rates. Gold's beaten down almost to production cost at juniors and they might as well buy it on the future and spot market.  Equities are overpriced for tepid GDP growth and need to correct another 10-15%.
Jun 28, 2013 6:52AM
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Inflation, Inflation, Inflation.... This is what is going to sink the economy. the AMERICAN tax payer just does not have the money any longer. Let me know what it feels like when you reach into your pocket here shortly and only feel your LEG!!!!!
Jun 27, 2013 7:53PM
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a bloodbath in metals is overdue and will take it's toll before the year is out. It was over priced anyway. Time for these fake investors to get real and start buying for long term investments instead of the get rich short term equity schemes the create.
Jun 28, 2013 1:29AM
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Where is the guys who used to talk about gold all the time..Finkelstein?

 

Jun 28, 2013 7:04AM
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End of the Road: How Money Became Worthless. This is a must see documentary. It will explain exactly why the coming economic crisis is inevitable. Do yourself a favor...and watch it. Especially if you have money. 
Jun 27, 2013 8:40PM
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With the financial markets having become an evil practiced openly against all mankind, the manipulation of the only true monetary measure of value left -- physical (in you hands) Gold and Silver -- was inevitable. QE will never end. The FED, along with the world's central banks, will be doing more than just declaring itself tyrant for life, it will soon succeed in replacing the power of the despot with the power of a free market economy and calling it the same thing.
Jun 28, 2013 11:20AM
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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...??

Jun 28, 2013 9:23AM
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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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