Gold Swims Against Strong Equities Currents

July 11, 2016 - 5:14pm

 by Gary Wagner

There is a handful of relatively simple reasons why it took till today for the stock markets to churn and burn higher.

First, there was an election for the upper house of Japan’s parliament that went strongly for Shinzo Abe’s party, a group that believes in even looser monetary policies for the country than are now in place. In essence, the election of a majority of Abenomics-oriented “senators” will allow the government to double down on easing money further.

Second, the full import of the U.S. labor report that was issued by the Department of Labor Friday tells us that the American economy is hot but not too hot, a Goldilocks report as we said here going into this past weekend. The report, when factored in with data of the previous two months, leads us to believe the Fed will not raise rates during the FOMC meeting late this month.

Third, summer Fridays in the U.S. are generally low-volume days, given how the financial jet set scoots off to its favorite watering spots as early as possible for the weekend. On Friday we saw very nice gains on somewhat low volume. Today we saw high gains on high volume, a definitive sign of bullishness in equities.

The Nikkei was strongest among all the indexes, as one might expect, rising almost 4.00%. The DAX, FTSE and CAC all rose smartly, 2.00%, 1.40% and 1.75% respectively.

The S&P 500 hit new record territory, holding in afternoon trading at the 2140 range. The NASDAQ popped over 5000 then fell back but is still flirting with the magical number. The Dow is up 80+ points, pushing deeper into 18000+ territory.

There are strong technical indicators that gold is poised to take wing as well, although it struggled today due to the insurmountable appeal of equities. However, all the factors that we have cited recently for gold as a true investment are still in place. There is money to invest and many folks with that money are falling for the ETFs again, like getting back with an old flame.

Surprising silver is taking only a small hit on the day, off about 0.10% on the session. It has been on an impressive run.

The expectation that Abe of Japan will stimulate the stimulus already in place there drove the U.S. dollar to gains against the yen of 2.25%, equaling a recent high. The euro and British pound were up negligibly against the greenback.

West Texas Intermediate crude feel to a two-month low on a number of bits of news. U.S. rig count rose for the fifth time in six weeks and Canada is pumping oil like there’s no tomorrow, perhaps taking a page from OPEC’s playbook. Further, Asian pre-orders for crude and petroleum distillates late summer/early fall are down in anticipation through the rest of 2016 on weaker growth prospects.

The decline of energy makes the rise in equities all the more stunning.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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