Buzzed Up On A Free Flowing Fix Of Fiat

Silver and Gold came under pressure this morning as the Non-farm Payrolls Report hit the news wires.  Not too surprisingly, the jobs report was "better than expected" and blew some much needed wind into the US Dollars tattered sails.  Coupled with more hawkish Fed speak yesterday, the case for a Dollar rally gained supporters in the currency markets as traders reacted to the March payrolls report.

Cold water was splashed on this mornings Dollar rally enthusiasm as New York Fed Head William Dudley spoke at a scheduled function at 10AM this morning and suggested that there was no reason to reverse course of the current Fed monetary policy.  His ramblings worked to put a floor under the Precious Metals just after his statement was released.  Gold found support at it's January uptrend line near $1412, and Silver found support building up at $37.

The Fed's current QE2 policy is scheduled to end June 31, 2011.  Do Dudley's comments suggest that despite the rising tide of hawkish comments from other Fed Heads QE2 will be seen thru to it's scheduled end?  One would think so, but it might also suggest that there will be no immediate QE3 to follow.  This is noteworthy, and this debate inside the Fed over it's QE policy should be watched closely...particularly the statement at the end of the April FOMC meeting.

Unemployment rate falls to 8.8 pct., two-year low
By JEANNINE AVERSA
WASHINGTON – The unemployment rate fell to a two-year low of 8.8 percent in March, capping the strongest two months of hiring since before the recession began.

The economy added 216,000 jobs last month, the Labor Department said Friday. Factories, retailers, the education and health care sectors and professional and financial services all expanded payrolls. Those job gains offset layoffs by local governments.

Another month of brisk hiring provided the latest sign that the economy is strengthening nearly two years after the recession ended.

Private employers, the backbone of the economy, drove the gains. They added more than 200,000 jobs for a second straight month. It was the first time that's happened since 2006 — more than a year before the recession started.

The unemployment rate dipped from 8.9 percent in February. The rate has fallen a full percentage point over the past four months. That's the sharpest drop since 1983.

Fed’s Dudley Warns Against Prematurely Tightening Policy
By Michael S. Derby
A key Federal Reserve official warned Friday against moving prematurely to tighten monetary policy, saying as far as the U.S. economy has come, the recovery process remains “tenuous.”

“A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking” and have been expecting at the central bank, Federal Reserve Bank of New York President William Dudley said. “This is welcome and not a reason to reverse course.”

Dudley’s comments came from the text of a speech he was to present before the E-3 Summit of the Americas trade forum. He spoke in the wake of the release of solid hiring data for March, and as a number of other Fed officials have been arguing the Fed is getting close to the time it will need to tighten monetary policy. Dudley is the vice chairman of the monetary-policy-setting Federal Open Market Committee, and shares with Fed Chairman Ben Bernanke the belief that the economy still needs considerable support from the Fed. He has been a staunch advocate of the central bank’s $600 billion bond-buying program.

March Jobs Report:

By Daniel Gross

First, the conservative jobs recovery continues.

Second, whereas the early stages of this expansion were driven almost exclusively by exports and business, now a mix of domestic consumer demand and global growth/business recovery are fueling job creation.

Third, signs of distress and slack still abound. The size of the work force actually grew in March, for the second straight month, which is why the unemployment rate didn't fall. But the labor force participation rate was unchanged, and the employment-population rate, which is perhaps the most telling piece of data on the health of the overall job market, remained at a low 58.5 percent. As a result, this labor market remains very much a buyers' one. The combination of perpetually weakening unions, government austerity measures, and the high level of slack means workers have a very tough time getting getting higher wages. In March, average hourly earnings and average weekly earnings in the private sector were unchanged.

And thus the case can be made to support Fed Head Dudley's assertion that currently Fed policy should be allowed to run it's course...and likely end in June.  Wages have stagnated, and without rising wages the Fed does not feel compelled to worry too much about inflation.  As a matter of fact, stagnant wages offer the Fed the cover to remain very smug about inflation fears despite rising food and energy costs.  One might even go so far as to believe that Fed is not that interested in seeing the unemployment rate fall as the tightening in the jobs market would lead to wage increases which would expose the inflationary pressures that the Fed are creating in the economy and continue to dispel.

Silver and Gold have predictably bounced from their lows this morning.  It remains to be seen however if these bounces will stick.  Because all that has been said by our illustrious Fed Heads this week, consideration must be given to what an end to QE2 will mean to the equity and commodity markets should it be pulled at the end of June as planned.  On the flip side, if QE2 is going to run another three months, why wouldn't the equity and commodity markets tack on a few more gains as long as the money the Fed is continuing to print is pouring into them?

Pay Attention to the Fed
by Mike Larson
There’s no sign … yet … that Helicopter Ben is on board with the tightening trend. Nor are some of his fellow “doves” signaling any intention to end QE2 or raise interest rates from the current range of 0 percent to 0.25 percent. But the hawks are definitely turning up the heat here, and it’s high time that we investors pay attention.

Why? Because easy money is a key driver for many of the market moves we’ve seen lately!

But don’t just take my word for it. Ask yourself:

•Why does crude oil keep going up and up on the same news?
•Why do stocks surge right back after every correction?
•Why do junk bond prices keep rising inexorably higher?
•Why are stupid loans starting to rear their ugly head again?
•And why is the dollar falling virtually nonstop?
Because the Fed is always at the ready with billions and billions of freshly printed dollars, that’s why! It’s a monetary policy-driven bout of asset inflation, just like we’ve seen multiple times over the past two decades.

So it stands to reason that IF anything interrupts the flow of easy money — whether it’s the end of QE, a rise in rates, or both — the asset markets are going to get whacked. That’s why the ever-changing tone in Fed remarks is so important to note.

IF the Fed is interested in a "controlled decent" of the Dollar, then it is unlikly QE3 will be launched on July 1, 2011 as QE2 closes shop.  The markets must be put back in a position to "demand" QE3 before it will be launched.  Right now, the equity and commodity markets are buzzed up on a free flowing fix of fiat.  Turn off the money spigot, and withdrawal could be mighty painful. 

I remain cautious on the Precious Metals at these prices, but on the lookout for opportunities at a price.
It would not be unexpected to see Silver and Gold enter a range bound trade through the month of April ahead of the next FOMC meeting April 26-27 based on the mixed messages being spewed by the various Fed heads.  Gold between $1410 and $1445.  Silver bewtween $36.50 and $38.  A range bound trade would be very frustrating for all of us.  Any break lower out of this range trade, should it continue moving forward, has the potential to be ugly.  Any break higher could be monumental.