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Thursday, November 07, 2013 12:41 PM

Euro Swings Significantly, Gold Dips Following ECB Rate Cut Announcement; US Tapering Coming Up?

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Here is a 10-minute Euro chart that shows wild swings following the Unexpected ECB Decision to lower rates today.

10-minute Euro Chart


The Euro swung 2 cents vs. the US dollar but has now regained about half of the move.On a percentage basis, these are substantial swings.

10-minute Gold Chart

Charts from Barchart.

Gold fell about $30 following the ECB announcement and has taken back about a third of the decline.

US Tapering Coming Up?

Is competitive currency debasement bad for gold? It shouldn't be.

Likely, this is more of an over-reaction to the still-lingering belief that the Fed is going to taper.

How likely is that? Not very according to Bloomberg columnist Caroline Baum in her article today A GDP Report in Search of Liftoff

While real GDP increased 2.8 percent in the third quarter, inventories accounted for almost a third of the growth. Consumer spending added 1 percentage point and net exports 0.3 percentage point. Real final sales, which is GDP less inventories, rose 2 percent, close to the trend since the recession ended in June 2009. Final sales to domestic purchasers, which excludes exports and includes imports, rose a meager 1.7 percent.

So there you have it. Almost five years of zero-percent interest rates, about $3 trillion of asset purchases by the Federal Reserve and lots of forward guidance on both, and the U.S. economy still can't get out of its own way. Whatever else the Fed decides, tapering asset purchases isn't in the cards any time soon.
Should vs. Will are Horses of a Different Color

Given the huge asset bubbles in equities and corporate bonds, the Fed ought to be tapering now. Then again, given that repetitive bubble blowing never makes any sense, the Fed should never have launched three rounds of QE in the first place.

But what the Fed "should" do and what the Fed "will" do are horses of a different color. Baum is highly likely correct in her assertion "tapering asset purchases isn't in the cards any time soon."

Mike "Mish" Shedlock

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