Gold Stays Soft as Oil and Stocks Fall Modestly

There are a number of key fundamental issues afoot in the markets today. Among them are the confusing new jobs data; the persistent softness in gold; the seeming hitting of a ceiling by oil prices, and the free fall of the British pound due to what is now being called “hard Brexit.”

The September U.S. jobs report came in below expectations, but given how second-look adjustments have been trending, the ultimate figure will eventually come in barely under expert predictions. The ever-continuing uptick in job creation, however, has enticed more people into the marketplace. Thus, the unemployment rate moved up a tenth of a percent.

Our biggest concern is not the gross numbers of jobs created but the types of jobs illustrated in the report, which was top heavy with lower-paying service jobs and showed a continuing decline in manufacturing jobs. Construction jobs, generally well-paying, however, were up robustly.

The U.S. dollar was down about 0.30% against the euro but up by 1.40% against the British pound sterling. Thus, dollar-denominated gold prices were up because of a weaker dollar whereas pound-denominated gold prices went even higher. In the U.S., regular traders, trying to skate across that bumpy ice, brought down gold’s pricing by almost $4.00 at one point, but late in the day the yellow metal is essentially unchanged. Silver is up about 1.00% on the day.

It should be noted that gold is down about 5.00% this week. Look on the bright side, however. It’s good to have money on the sideline so we are ready to make our next trade.

Oil finally hit its upper limit for the moment. We have been skeptical of oil’s prospects. OPEC and its non-OPEC allies are certainly in a predicament. Prices have been at rock-bottom levels but raising the price now through a production freeze or cut will only tempt out thousands of marginal producers around the world, but especially in the U.S., Canada and to a lesser extent, Mexico. The alarms go off when oil goes over $50 per barrel. If it were to hit $55.00, increased North American production will smack down the prices almost overnight.

Summing up, prices raised through market manipulation could ultimately hurt OPEC member nations by giving incentive to other producers.

"Many U.S. shale oil producers have now hedged their production, which is likely to put the brakes on the price rise," analysts at Commerzbank said in a note. "In other words, OPEC is shooting itself in the foot in the medium to long term."

One early sign of oversupply has emerged already. Top exporter Saudi Arabia cut its benchmark crude prices to Asia this week, and analysts at JBC Energy warned there was "a growing disconnect between the physical and the financial (oil) market," which would likely converge. 

Additionally, yesterday Libya exported the first oil tanker from the port of Zuetina since 2015, adding to global supplies.

Neither the employment data nor oil prices helped equities today. Energy stocks were up on a delayed reaction to price rises earlier on the week but they could not offset some serious problems emerging in the old tech sector.

Honeywell, a deeply entrenched and profitable player in the aerospace industry fell 6.00% today. Other old-school space and technology companies fell in sympathy. All are worried about the future of U.S. government budgets. This rough sledding helped hold equities prices down. However, the three major indexes are struggling at the close of day to get back to even.

Where do we begin with the “hard Brexit?” Apparently the British government wants to pass through the narrow defile as quickly and harshly as possible.

No one else in the world likes that idea. France, Germany and Italy are close to telling the UK to shove off and find someone else to trade with.

While the Obama administration has stayed relatively quiet over the matter because of larger diplomatic and military relationships, trade and banking between the two countries will become problematic as well. A weaker pound could mean better export opportunities for British-made products.

However, British banks and many others in Europe with excessive exposure to the pound will see their bottom lines hurt, which in turn will hurt share prices. Buckle up, Britain.

Wishing you as always, good trading,