Dams Upriver

As the United States developed, it blocked spawning by salmon, and other fish, who had to make their way upriver to complete their life cycles.

Gold is facing a number of dams as it makes its way upstream. Some are probably temporary, some are structural, perhaps permanently.

Let's start with the temporary.

The levels of gold being imported into China and India are approaching record lows. It seems day after day, month after month, the levels keep dropping. While gold may be many other things, it is, after all, a commodity, and there are actual end users.

The U.S. equities markets are exerting an almost cosmic pull on money. Today, the S&P touched the magical 2000 level before dropping back a couple of points at the close. The U.S., it appears is becoming the only game in town, and that town is the whole world. The Fed is fueling this buying frenzy and stock traders are surfing the big pipeline until... well, no one knows when it will end.

Meanwhile on the more structural basis there is a dam that is intimately related to the equities markets: everyday small investors are more and more interested in the stock markets. Perhaps they are saying to themselves, "It's now or never," with a tension inside themselves that is indicative of a fear of not cashing in on one of the largest, longest rises in equities prices in history.

Another structural dam is the condition of the rest of the world's economy. For decades, the euro has been a strong, trustworthy currency. While it does not function as a reserve currency the way the U.S. dollar does, it functions as a very solid alternative. In a sense, the eurozone is a second United States - big, heavily developed, technologically advanced and reasonably self sufficient except for energy.

Now, however, something seems to have sputtered in the EU engine room.

We said at least a year ago that Europe did not respond quickly nor deeply enough to the GreatRecession. They are finally seeing the light, but, because there are many political components to the banking system, they are still not responding coherently. Personally, we think that Germany, The Netherlands, Belgium and certain forces in France and northern Italy, are doing the zone and the whole world a disservice.

The attractiveness of the U.S. dollar is now immense, a fact that will either drive down the price of gold or at least surely limit its gains. To a more limited extent, U.S. Treasuries hold the same allure. Even though many investors are tippling the champagne of the equities markets, they need to have a little plain old bottled water in the pantry should there be a decline.

Gold is not seeing bullish action from economic data or international conditions. Today, for instance, new home sales fell to their lowest in four months. And, over the weekend, Russia essentially invaded Ukraine.

But we would stay focused on equities. Today is considered to be the slowest day of the slowest week in the slowest month on Wall Street. And yet, up, up, up went the equities.

As always, wishing you good trading,