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Gold Shows Resilience As Crude Pop Sets Off Equities Rise

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Gold’s solid, if modest, rise today is significant not only because of technical factors that will be discussed in today’s video, but because the yellow precious metal showed fundamental strength in the face of very strong up-moves in equities and crude oil.

As we said during our previous trade, gold has begun to function as an autonomous force once more, an investment valued for its potential price increase rather than as a temporary shelter from volatility.

Additionally, other safe haven barometers were off or neutral on the day. Yields on the 10-year U.S. T-bond were up, indicating lighter demand. The U.S. dollar was almost unchanged against the euro and turned down against the yen late in the afternoon session, mainly because of positioning for the overnight market in Asia.

The price of West Texas Intermediate crude rose 5.50% while Brent North Sea soared 6.65% today on a statement by Iran that it was willing to go along with OPEC’s ceiling on production. How meaningful this “agreement” is beyond its acting as a powerful rumor will be seen shortly.

However, the jump right across the board in energy certainly helped equities, especially in Europe and the U.S. There was other news affecting the powering up of equities, however.

The Federal Open Market Committee grew markedly uncertain about the fate of the American economic recovery in January, according to minutes of its January meeting released today. They took into larger account global turmoil to alter forecasts they had made just six weeks earlier in December of 2015.

They also noted that because of the decline in energy prices and the unabated robustness of the U.S. dollar, prices have risen more slowly than anticipated. Those twin factors are keeping inflation far from the target of 2.00% set by the Fed.

There was also conflicting data reported that runs a bit counter to the Fed January outlook. After three straight months of contraction, U.S. industrial output rose almost one full percent in January. Perhaps that was simply making up lost ground for Q4, but it may be that inventories have been sold off and we are returning to normal.

A slightly smaller drop in producer prices than forecast also was issued today. And housing permits fell in January largely because of bad weather in many parts of the country but also simply on regular yearly cyclical patterns. Our prediction is that once the weather warms the pent up action on new housing will pop the numbers.

Just a note before closing – Asian equities were in conflict today, Shanghai contradicting Tokyo and Hong Kong. We will be curious how Shanghai reacts overnight after FOMC minutes indicated China was weak and a systemic global concern, although not a direct threat to the United States economy.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer