Ball of Confusion Intensified by the American Political Process is helping Firm the Price of Gold

Oil prices today sank again on inventory and overproduction, dragging equities with them. The Dow, S&P and NASDAQ are all down about 2.00%. NASDAQ is the weakest as Alphabet – Google – lost half of its gains from today’s highs on profit taking.

Gold, ten-year bonds and the greenback are stronger on risk aversion.

In times of uncertainty, gold, bonds and select currencies tease out the conservatism in some investors.

This could be read as a negative, a sense that equities, utilitarian commodities and weaker currencies are not worth the time or trouble.

The flip side of that is the strong “sideline” influence that safety plays bring to the larger market mechanism. In conversational tone, it says, “We have to be content while you, Equities and Other Commodities, pull your stuff together.” Investors, of course, and the rest of us to a degree, hope that companies financed by big money then react to the money sitting on the bench that is waiting for the game to turn around. Do better, that money says. Show us something.

While uncertainty hovers over China, in particular, but also over the European Union, Russia, Brazil, Indonesia and South Africa, money needs to go somewhere. That is why we can foresee from a purely fundamental standpoint gold heading toward 1150 on a short-term basis. Silver should see a shadow rise that may not be quite as dramatic.

Europe remains a bit of a conundrum and the U.S. is striving to keep its ship moving ahead and doing a decent job of it.

After gold rises to the mid-1150s, the behavior of the equities markets will dictate the price of precious metals. Something beyond haven buying will have to drive it, unless the world economy goes to hell in a handcart en masse.

The equities are struggling again today. Ostensibly, this is because West Texas Intermediate crude took another serious hit, trading below $30 per barrel early in the day, then struggling for most of the session before succumbing and falling through that psychological point. Brent North Sea was hammered, too, although not quite as hard.

Surprisingly, the normally much quieter natural gas quote fell 5.35%. Aside from the structural global glut, energy prices are being squeezed by a relatively mild winter in the northern hemisphere.

The Iowa political caucuses were held last night. There were surprises on both the Republican and Democratic sides. Obviously in-depth coverage of the results are available everywhere.

The caucuses present us with a chicken-and-egg question.

Are the contrasts and choices in both parties a reflection of uncertainty or a reaction to uncertainty. It is glib to say “both,” but it is partially true.

We think that – especially in the United States – the mood of the electorate is much more sour than conditions dictate. Yes, the economy could be better, but it has improved immensely. Terrorism is a threat, but it is scarcely the worst threat ever confronted by the U.S. or the rest of West.

China appears to be moving from being a rising economic star with pretensions to superpower status to being the sick man of Asia.

The Russians – for the West – function more as a thorn in the side than an existential threat.

If you look at the lines of demarcation drawn in the two political parties, it is between populism as exemplified by Bernie Sanders and Donald Trump, and establishment politicians, exemplified by Hillary Clinton and Marco Rubio. Ted Cruz on the Republican side is a little bit of outsider and insider.

Ironically enough, both parties are discussing “equity.” The issues are equitable income distribution, fairness concerning immigration – legal or not, the environment, and the rights of minorities and women.

It is unnerving to see some candidates treating those serious issues cavalierly. There seems to be no real commitment to making things better, but only talking down the state of the down. (“Let’s make America great again.”)

Maybe that is their version of “sitting on the sidelines.” We read an interesting commentary that said the winner of the contest come November will be the person who talks more about “you” (the citizens) and less about him or herself as candidate.

People are surely beginning to wonder loudly what the politicians will do for the common people.

And for their portfolios…

Wishing you as always, good trading,