Gold Loses Ice-Water Challenge

The second of a one-two punch today - the drop in weekly jobless claims - was all that gold could take. It's off today over 1%.

Other people may be taking the ALS fund-raising ice-water bath challenge, but gold bulls got plenty of cold water dumped on them.

Still, from our perspective, it's hard to believe that the reaction is so negative toward gold. In the absence of other statements by the Fed - just out yesterday in the form of its minutes - what can these investors be thinking? Even if the Fed were to raise rates, how much could they possibly raise them in a three-month period, for instance?

The (non-FOMC) Fed official from Kansas City, Esther George, throwing fuel on the fire, claims that if the Fed doesn't raise interest rates - like right now - the country is going to go to hell in a handcart. She's trying to discern what might happen with inflation.

First, Ms. George, save it for when you're a voting member. Second, inflation is running at 2%, and just barely. Yes, it heated up a bit, but now it has completely simmered down. How is the economy growing, by the way? Huh, amazing - right around 2%. Again, just barely.

If we ruled the world, we would prohibit non-voting Fed members to button their lips. We would also have the Fed meet far less frequently for the sake of stability. Eight meetings per year makes for too much mischief and simply invites speculation that is often off base regarding the FOMC's next moves.

We would also like to point out that so far the FOMC has delivered exactly what it has promised.

The equities markets seem to be the biggest winner during this false alarm over interest rates. American indices are up, all European ones and the Nikkei are also up. But, but...

If low interest rates are fueling the long equities rally, why isn't the fear of the last two days driving prices down? Good question. As we said yesterday, Wall Street is seeing the interest rate question very differently from the way gold traders are looking at it.

As might have been expected, gold also ran into some technical selling off this morning in New York, after there was follow through selling in Asia and a bit more in Europe. This interaction helped gold's decline.

Although the precious yellow metal is off of its earlier lows, we'll have to trust our technical analysis to see just how low we will go, or if a turnaround is in the offing.

As always, wishing you good trading,