Boo!

Yesterday we closed the fundamentals portion of our email by discussing how many votes would have to swing in order to change the Fed's direction on QE3. Apparently many precious metals analysts can't figure simple math. Perhaps they are into advanced trig and algebra that mere mortals cannot comprehend. The fact remains: the economy is sputtering. employment is stumbling and bumbling and inflation is a cream puff.

Granted, more than half the drop in gold was due to a rise in the dollar but that rise is based on the ephemera of a 30-year record rise in the Chicago area Purchasing Managers Index. As theWall Street Journal said:

"Unlike employment data, the Chicago PMI will be followed immediately by a sanity check: the closely watched national survey of manufacturers by the Institute for Supply Management due Friday. According to a Dow Jones Newswires survey, it is seen declining to a still-strong 55. September's surprising 56.2 also was the highest since April 2011." 

Ryan Sweet, senior economist at Moody's Analytics, said "Anytime you get a big swing of this magnitude, you always want to take it with a grain of salt, particularly with the slowing in the domestic economy and the heightened policy uncertainty." 

U.S. equities fell as did the FTSE and all three Asian indexes. Hmmm... someone 'splain how this works? Raging manufacturing, gold, silver and stocks dipping. Oil still declining. Someone's got to have faith in something if the news is so wonderful.  

"Clearly," said Thursday's precious metals comment from Commerzbank, looking at the gold price drop, "some market players expect the Federal Reserve to scale back its bond purchases in the near future."

"[But] the Fed made virtually no changes to its statement that would justify this expectation."

Looking ahead, "The Fed will likely not do anything at its year-end meeting given that there are key budget and debt ceiling dates just a few weeks after that," says Edward Meir at brokers INTL-FCStone.

"We think gold prices may be under pressure for the balance of the week, but the [precious metals] complex should regroup and push higher going into year-end."

Meantime, says ANZ Bank's daily note, "Gold along with other markets, was positioned for a dovish Fed. With this event risk now behind us, the market will go back into data-watch mode."

Another point of view is this: traders booked profits from gold's 2.5% rise in October, which, after the FOMC meeting and in today's trading, disappeared. (We pulled profits Tuesday.) 

The last point of view for today: It's month's end and positions were being squared. 

It's time to keep a close eye on a shift in the wind and buy on technical signals. Remember, at the end of June gold was trading at 1192. There is a lot of room to make money on the upside in, say, the $130 range experienced in the last three months. 
   
Wishing you as always good trading,