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Gold Wears White Hat To Serve As Traditional Haven

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As we concluded yesterday, now that the Federal Reserve rate hike is in the rearview mirror, analysts and traders have begun to focus on other issues.

Oil and other energy problems are in the forefront, but some issues that are cyclical are also afflicting markets. For instance, today there was a huge raft of expirations on stock options. At one point, there was more than $3.5 billion in stocks laid on the market floors that had to be moved. It’s hard to rally in the face of those kinds of headwinds.

"You can't dismiss the quadruple witching. It begins to affect market volatility and volume. You also have a backdrop for the market that has not been as healthy as you want to see it," said Quincy Krosby, market strategist at Prudential Financial.

She was referring to the long-term depression of oil prices. The markets just haven’t developed a counter scenario as to how the world economy moves forward while crude prices remain so low.

Our first thought is this: we are beginning to see the shrinking of fossil fuels as prime economic movers. There is simply too much oil wherever you look, and too many alternatives ranging from the more traditional natural gas to improved vehicle economy, from solar and wind to more exotic engineering solutions.

Additionally, many investors, as well as men and women on Main Street, are worried that the Fed raised rates just as the U.S. economy was showing some weakness. Whether the weakness is real, long-term and of great concern reminds us once again that economic is called “the dismal science” for a reason.

Richmond Fed President Jeffrey Lacker defended in an early afternoon comment to Reuters. He claims that the Fed rate hike shows how much the U.S. economy has strengthened. Perhaps… Tom Petty sang, “You believe what you want to believe, so you don’t have to live like a refugee.”

We’re looking for more volatility as the next two weeks are only 4-days long and all working-day desks will be manned by more junior traders and investors, so there will be less trading, and therefore more volatility.

Major U.S. indexes are off their lows of the day, but not by much.

West Texas Intermediate crude shaved another percent off its price and is now well below $35 per barrel. Brent North Sea is also off a percent, taking it under $37 per barrel. Brent has lost not quite 50% in price since June of this year.

Gold (and silver) rose today, taking back about half of yesterday’s loss of approximately 2.00%. This is due to a combination of factors. Among them are: the jitteriness in equities stemming from the depression in crude prices; a renewed consideration of a longer-term view that gold is “due” to rise because of flagging dollar strength; and a rush to grab bargains.

We think a little differently. Right now, the end-of-year watchword in all markets is “volatility,” thus both gold and silver (to a lesser extent), are serving in their traditional rolls as safe havens.

Now there’s a year-end surprise. Wishing you as always, good trading,

Gary S. Wagner - Executive Producer