Gold Leading Worldwide Investment Forces Today

Line up all the different investments available right now and consider how they are behaving.

Gold is bellowing like a bull, drawing in money that is afraid of a half dozen trends and possibilities. Good for gold – it’s been undervalued for so long that it is like having an old friend you haven’t seen for a long time show up unexpectedly at your door.

At 4 PM in New York, gold is trading up about 2.90%, up around $33. It briefly touched $1200 per ounce.

Now those trends and possibilities that are hammering the equities:

Crude oil. Although it is off its lows of the day, West Texas Intermediate, the American benchmark, is down 2.60% and has been looking to punch down and through the recent $30 support level. In late trading it is treading water just above that mark.

Although oil is falling for a host of reasons, traders are seeing this fresh decline as indicative of a weak world economy. "Like it or not, we use oil as a barometer for the global economy," said Art Hogan, chief market strategist at Wunderlich Securities.

That circles around to China. China is doing terribly. Currently, adding to uncertainty is the closing of China’s markets for the whole week for Lunar New Year. That’s a long time to lay off officially.

NASDAQ is taking more than its fair share of abuse recently and that is tending to further fuel the fears of shaky oil prices. Facebook, which last week reported a huge jump in revenues and earnings, was again beaten up because it has been stymied by regulators in India, who are preventing the company from providing inexpensive Internet service. Whether it’s protectionism or not, the roadblock pushed FB down 2.75%.

However, all three main U.S. indexes have cut their losses dramatically as traders went bargain hunting.

Bond yields are also damaging confidence. They are low and probably headed lower as sovereign bonds are serving as a second line of safe haven instruments after gold. People want U.S. 10-year bonds that they are willing to take 1.75% in interest, a sign that investors don’t think that inflation will rise “soon.”

OK then – inflation. Everyone wants to know that we either are or aren’t going to get a second interest rate hike out of the Fed. The line the U.S. central bank has to walk is to set rates so that there is some inflation but not too much, and that accommodative policy remains helpful but not too helpful. So, for the nonce, gold remains attractive because it is moving higher in price, but is not acting as an inflation hedge because, well, there is no inflation to speak of.

The U.S. dollar has weakened dramatically in the last few sessions. Now, for Americans, this is good and bad. It’s great if you’re an exporter because it puts the U.S. back onto a slightly more equal footing with other exporting nations. For consumers, it means there are slightly higher prices for imported goods. But, let’s not forget that those slightly higher prices should be averaged in with last year’s slightly lower prices on imports in the U.S.

Then there is general sentiment. One can’t discount it but to embrace it means you’ve got to have a full-functioning weather station that measures global moods and intentions.

Will all those factors keep pressuring equities, yields and the dollar? Regarding the equities, the NASDAQ is very close to going into full bear mode. The Dow and S&P 500 are heading that way.

We do feel as if a bit of good news from some sector or another – solid but not even overtly dramatic – would punch down the yeasty rise in havens and stabilize, if not re-launch, equities prices up.

Wishing you as always, good trading,