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Summary

  • The SPDR Gold Trust ETF has essentially reversed all the gains presumably built on fears the Fed was behind the curve on inflation.
  • This roundtrip provides another example of the effectiveness of using Google Trends to assess the short-term sustainability in extreme moves in SPDR Gold Trust.
  • The extended trading range in the dollar index underlines the reality that there is on balance still no new news on monetary policy.

Last week, I pointed out that Google Trends suggested that the recent spike in the SPDR Gold Trust ETF (NYSEARCA:GLD) was not likely sustainable. The spike in GLD began a month ago as the market fretted in reactionary style over the possibility that the Federal Reserve was falling behind the curve on inflation. At the time, I countered the knee-jerk media narrative by arguing that the Fed's call on rates is the right one and that its statement contained no new news anyway about U.S. monetary policy.

Fast-forward to today, and another Fed spin cycle is underway, with the submission of the Federal Reserve's latest Monetary Policy Report as a part of Chair Janet Yellen's testimony before the Senate's Committee on Banking, Housing, and Urban Affairs. The new narrative is a complete reversal from the last one. Suddenly, the Fed is quite serious about hiking interest rates, simply because Yellen indicated "… If the labor market continues to improve more quickly than anticipated by the Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned." (For example, see Reuters' story "Gold below $1,300 on stronger dollar, interest rate fears").

Never mind that Yellen followed that "warning" with the obvious counter-example: "Conversely, if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated." I am assuming that sentiment was primed for a Fed that is too dovish in the face of a looming inflation threat, thus explaining how the higher-rate condition took on more weight than it should have. Regardless, the bottom line is once again that the market experiences a lot of churn over no new news on monetary policy. This time, the net-net is a roundtrip for GLD, the presumed play on an inattentive Fed. GLD has returned to its open on the day of the big pop, and is just 1% away from closing that gap up.

SPDR Gold Trust ETF takes a roundtrip as market settles on new news from the Fed on monetary policy

The upshot to all this is that Google Trends has again proven itself useful in assessing the sustainability of extreme moves in GLD. For more background and research on the how and why Google Trends can work for assessing market and economic dynamics, interested readers can check out the following references:

These are just two examples out of several references.

Finally, note that the U.S. dollar (NYSEARCA:UUP) underlines the baseline sentiment that monetary policy is stuck in neutral. The U.S. dollar index has essentially gone nowhere in the last year, as it remains tucked neatly between the rails of its levels when QE2 and QE3 were announced. Notably, the dollar index currently trades about where it was when Fed bond tapering was announced. It is also just barely above its level when Yellen made her first Fed announcement as Chair.

Even the dollar index has been telling us there is no new news, as it stays neatly tucked between its QE2 and QE3 reference prices for the last year

Be careful out there!

Source for charts: FreeStockCharts.com

Source: A Roundtrip For The SPDR Gold Trust As Market Narrative Reverses On Fed's Inflation Stance

Additional disclosure: In forex, I am net long the U.S. dollar