Geopolitics And Poker

Adding to uncertainty in international affairs is the situation in Hong Kong. Hong Kong occupies an unusual position in the world financial community, and in the geopolitics between communist China, the rest of Asia and the West.

Everything that underpins Hong Kong's wealth and influence is based on western values, systems and - get ready, China - freedom. Suppressing the urge to self-expression and free market ideas in a financially based economy is suicidal. This is exactly why countries like China experience a brain drain. Singapore, New York, London... so many places for the talent to go.

The news from Hong Kong sent equities down sharply in the U.S. and Europe, although in late trading, the three major U.S. markets have rebounded and are now down about 0.25% each.

Conversely, the unrest in Hong Kong kept gold up until it went down as stocks recovered when a severe reaction from the central Chinese government did not materialize. China will have to be very careful. HK is the gateway into and out of China. Deals are made there, capital flows in, distribution deals come out.

The behemoth of the East also has to be careful because it is on shaky economic ground right now, and a crisis in foreign investment in China's economy could push growth down to the 4% range in the blink of an eye.

In other news, oil jumped up not quite 1% today, indicating that instability plays a part in that market, too. However, large inventories, declining gasoline consumption in the U.S. and more extraction will continue to pressure energy prices.

The relative calm in gold prices, and long-term stability in 10-year U.S. Treasury paper tells us that the U.S., at least is steady on its slow, difficult recovery. It is China first and Europe second that we have to watch.

Bargain hunters should step in to buy up equities soon, although some prognosticators are saying that it's about time for a whopping 10% correction in equities. That would push gold to the upside. 

As always, wishing you good trading,