About Face

Gold pulled back today in the face of stronger equities, a solid rise in the dollar and new weakness in oil. It is a good time to remind ourselves, though, that gold is up 2-1/4% in the last month. We’re going to have to ascertain where our trends lie for the remainder of the year and into the New Year.

Stocks were up on the power of new car sales. U.S. automobile sales rose 4.6 percent in November to 1.3 million, Auto data reported, with the auto sales rate coming to 17.2 million last month, the strongest pace for the month since 2003. The strong sales reflect, despite some shakiness in consumer confidence that the American economy is hitting on all cylinders, the recovery remaining broad-based and modestly deep.

This notion was reinforced by construction spending, which was up 1.1% on the month. The key to the robustness of that number is that spending seems to have shifted away from home building to larger projects like office buildings, factories, hospitals and schools.

It’s quite natural that the dollar would find muscle in these numbers. The dollar is at a 4-1/2 year high. Certainly that is helping to pressure all commodities, but gold and oil, in particular are suffering price volatility.

While we should be happy as consumers that the prices of oil and gasoline are falling, we need to remain aware that the oil industry accounts for 30% of all capital construction and equipment in the U.S. Will that be transferred elsewhere? A good question.

Some are saying that the price dip we saw today in gold is a “corrective pullback.” We feel gold is returning to its natural course in a booming economy. Whether Europe, Asia, and the second-world economies like Brazil, Russia, India and South Africa make up the slack by buying remains to be seen. 

Wishing you as always, good trading,