Even As Gold Rises, Bargainistas Jump In

An interesting sign appeared today in the precious markets. Bargain hunter stepped in as prices were going up, just as they did yesterday. Those hounds are smelling something and it ain't steak and eggs.

The precious markets took their hit soon after the run up following the start of the Crimean crisis. But bullish momentum quickly reasserted itself. Understand this, though: the crisis is not over, but heated words can only have so much of an effect upon safe-haven buying. There has to be more meat on the bone to make that sort of play sustainable.

A drum-beating hawk from the Philly Fed, Charles Plosser, made some gibberish-like remarks today, one of the more annoying factors when those of us who watch the Fed as part of their job have to read and listen to those statements. If you read the following, Plosser actually does not say a single thing. 

"As the expansion gains traction, the challenge will be to reduce accommodation and to normalize policy in a way that ensures that inflation remains close to our target, that the economy continues to grow, and that we avoid sowing the seeds of another financial crisis," Plosser said.

He went on to say, "While there continues to be some downside risk to growth, for the first time in years, I see the potential for more upside risk to the economic outlook. We need to consider this possibility as we calibrate monetary policy." 

Seven years of little to no growth and he's worried about the upside risk of growth? Inflation at 1.2%, and he's worried about the risk of growth? Millions still unemployed, wages and prices under pressure. Inflation at rock bottom in the entire developed world and he's worried about upside risk? Gosh, take a cool bath until the blood starts circulating again, Mr. Plosser.

But Plosser, like many of the hawks on the FOMC, are ideologues who can't furnish the country with a solid reason why they want to taper like it's 1999 and start raising rates now. "Might" is not a foundation upon which to build policy. The "might-happens" of other economic thinkers are just as good as Plosser's scenarios.

Meanwhile, the European Central Bank left its benchmark interest rate at 0.5%, as recent data pointed to a very moderate recovery in the euro zone.

ECB President Mario Draghi said he was encouraged by data issued Wednesday that business activity in the euro zone rose to a 32-month high in February and praised improvements in the services sector, which accounts for the majority of job growth.

The ECB remains determined to maintain its deeply accommodative monetary policy for as long as needed, and will take further actions as it sees fit, Draghi said, giving a sort of snapshot view of ECB thinking.

The decision to leave policy unchanged bolstered the single currency on Thursday against the dollar, often a spur for rising gold prices since the dollar and gold generally trade in opposite directions.

The euro bank revised down its inflation forecast for the year to 1.0% from 1.1% in December. The bank expects inflation to pick up to 1.3% in 2015 and 1.5% in 2016, still remaining below the bank's target of just under 2%.

Back to the American side of the pond... the Department of Labor reported today that the number of individuals filing for initial jobless benefits last week fell by 26,000 to 323,000 from the previous week's total of 349,000. Analysts were expecting jobless claims to fall by only 11,000 to 338,000.

Another report showed that U.S. factory orders fell 0.7% in February, compared to expectations for a 0.4% decline. Clearly, messages from data are indisputably mixed this week and trending softer.

So, Mr. Plosser, why are you tilting at windmills when there is so much continuing weakness that even the most unsophisticated person can see it? A more austere policy for its own sake is an insult to those who need to get a job, and for the country as a whole as it recovers. Ideologues win battles but they generally don't win wars.

As always, wishing you good trading,