Gold Softens, Equities Slide but Recover in PM Trading

A thought to open October on The Gold Forecast: October is the most volatile month.

There are a hundred theories why that is so and there is solid reasoning behind many of the theories. The fourth quarter is a “short quarter.” Holidays interrupt it. Winter interrupts it. Fear and trepidation regarding how the entire year will play out affects Q4 (for earnings and income). Books will be squared up and accounts will be reckoned with.

It is important to understand, though, that it is what has already happened that affects how October goes. So, examine September and the rest of the third quarter if you want to know the why’s about October. Onward.

In economic news, Markit’s September’s Manufacturing PMI came in at 51.5, a three-month low. "U.S. manufacturers signaled another moderate upturn in both production volumes and incoming new work during September, but the latest survey indicated a further loss of growth momentum from July's recent peak," Markit said.

However, the ISM Manufacturing index for September came in at 51.5, up from 49.4 in the previous month. Construction spending fell 0.7 percent in August, with analysts expecting a 0.2 percent increase.

This not-so-rosy news pushed the U.S. dollar higher for some reason. The higher dollar in turn helped push gold down moderately – a third of a percent – and piled on already-declining silver, which is trading off 1.85%. Note that China’s markets are closed until October 9 for “Chinese National Days,” a full week of holidaying.

Naturally, that big holiday extends its influence to all other trading areas. But, especially for gold and silver, we will see subdued volumes this week because of China.

Over at equities, we saw some bad news from a decline in auto sales, and soft real estate prices certainly dinged that sector on both the Dow and S&P. (It should be acknowledged that Tesla saw much higher sales figures reported since its last data drop.)

There is some resilience in stocks, though. The three major indexes in New York are down 0.30% or less, rising as we head to closing.

Oil prices are a big concern in equities, as well. Higher oil and natural gas prices squeeze utility profit margins and they add costs to almost everything we consume or services that we need.

Although it’s not fully rational, the rise in energy costs could provide the nudge to inflation that will create the tipping point for inflation (in the eyes of the Federal Reserve).

Even a small rise in interest rates could set off a chain reaction, one link of which would be a decline in haven prices. On the other hand, it could depress equities’ prices, a situation that would come around the back side of investments and raise demand for haven plays.

The question will be: what haven play will investors and traders choose?

Let’s close with the note we opened on. The VIX volatility index rose about 3.00% today but volatility is relatively subdued in the broader scheme of things.

Wishing you as always, good trading,