Gold Bulls Take Heart Today

Despite powerful headwinds from a revived U.S. dollar, traders involved in regular floor action bid up the price of gold robustly today. We’ll have to wait for the final close this afternoon to see if gold can keep itself above the crucial 1200 per ounce mark in the late session in New York.

Many eyes are turned on Yemen but the deterioration of that country, unless it begins to have a serious impact on the stability of Saudi Arabia, is marginal to the world economy – at best.

“If the situation in the Middle East [does] not improve, prices could continue to rise, but otherwise they are likely to fall back below $1,200,” Commerzbank analyst Daniel Briesemann said.

“Prices have soared 2 percent this morning on Yemen but in general, underlying demand is not generated by risk events and fundamentally I don't see a reason gold would move significantly in either direction in the short term.”

So, what is driving investors today? There is bullish sentiment in the game right now, for starters. Investors and traders are trying hard to push gold over 1200 and keep it there. That is a lynchpin level.

There is also a mumbled fear that U.S. equities have begun a longer-term sell off. Government and private data are driving that fear, as are geopolitical concerns as mentioned above. There are other factors, however. Earnings seem to be anemic and we are facing the initial reporting of the first quarter of 2015. Valuations continue to be too high.

So, Yemen and other hot spots may simply be the proximate cause for moving to safety. There is yet another interpretation that can be made about equities, though.

"The pullback is broad-based but really concentrated in high beta sectors (of) bio-techs and semiconductors," said Katie Stockton, chief technical strategist at BTIG. "The good news is the pullback has not generated a lot of breakdown."

A sudden rise in crude prices, also driven by the Yemen factor, should help the energy component in equities, which in turn could improve a suddenly soft transportation sector.

The indicator we like best, though, which will be released next week, is the Labor Department’s employment report. From weekly assessments, it appears that hiring is growing and layoffs are diminishing. But the monthly numbers are hard to predict.

Although it is a backward-looking indicator it helps predict the future because it tells of employers’ (very) independent and individual outlook for the future. You don’t hire more people if your guess is that sales are going soft.

More dovish reassurance from the Fed is needed to keep Wall Street happy.

Wishing you as always, good trading,