There is so much anticipation that the Fed is going to taper QE3 that the dollar has become stronger and stronger - it is not quite 10% higher against the euro as it was the same time last year. $1.27  vs. $1.36. (Although the greenback is off from 52-week highs on October 25th, last week.) There is controversy revolving around this phenomenon.

The first is that the Fed is not going to pull a Christmas surprise and hack quantitative easing measures to stubble. The earliest it will happen is at the March FOMC meeting. Saying otherwise is mindless palavering and it represents the worst speculative impulse the financial world has to offer. For those not watching the calendar, the next meeting is January 29, 2014, a full three months hence. 

It would be highly unorthodox for the Fed to change a major policy in between meetings. So, their choices are December's meeting, January's meeting and then March's.

And, if we go back to earlier statements this year both by Chairman Bernanke, Janet Yellen and others, they have described any future tapering as modest, a scaling back. Some members of the FOMC have spoken about a 10 to 15% scaling back on the initial tranche of tapering, whenever it begins. 

That would mean cutting back to $75 billion per month in bond and mortgage securities. That's not exactly going to ruin the economy relative to what the Fed is buying now.

But many analysts are leaning toward catastrophe, and that means there is lift to the dollar and it will probably also mean 10-year T-bill rates will rise again to levels that will help to paralyze homebuilding and buying, as happened over the summer.

We are of the opinion that the labor market is actually deteriorating. Once the winter holidays are over, or perhaps before, it will really fall apart. 

Additionally, while we welcome the rise in the Chicago manufacturing index, just as we did with the rise in Philly, manufacturing accounts for less and less of the total individuals employed in the country. One has to consider the steady decline in the number of agricultural workers or dock hands throughout the 20th and into the 21st century. Farmhands were replaced by threshers and balers, dock hands replaced by containerization and cranes. God bless more and better products being made in the U.S.A., and other places, but more automation means fewer warm bodies at the assembly lines.

All of this affects gold. The rising dollar accounted for a good chunk of yesterday's loss and today it's accounting for more than 90% of the loss in gold. A further rise in the dollar will mean even less inflation than we have now. It will also make foreign goods cheaper and therefore hurt American jobs. It will make crude oil even cheaper - it's already headed for $94 per barrel. 

Think about what you would do if you were on the FOMC and an ideological free thinker. (Meaning, forget the day of reckoning scenario for the moment...) 

What good would it do the economy of the U.S. - of the world - to taper severely and sooner rather than later? One thing for sure, interest rates on big-sticker items like houses, cars, boats, and commercial ventures would at least double. 

Note should also be taken that the Eurozone is now coming to grips with a great fear: deflation. This will be a topic to be fleshed out following the fallout from the current european Central Bank meetings. Essentially we are saying that the dollar's strength is not just due to conditions in the U.S.

All in all, we counsel patience. The gold bear isn't a world heavyweight. The macros and common sense are against it.