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Greeks Shoot Their Foot While Markets Yawn

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Greece, a flea of an economy, is giving big dog EU and other high-powered economies an itch they can’t quite scratch. Consequently, everyone is playing it safe, though they’re not stampeding into haven instruments except for currencies.

Gold fell back on the Greek news. That’s counterintuitive, but the case we make is that the markets are in the process of shrugging off the Greek issue. Why worry about the world’s 50th largest economy? (As a way of comparison, New Jersey, with about 2 million fewer people than Greece has a GDP bigger by $200 billion.)

What else can Greece possibly do wrong? It has dragged its feet over (mostly) commonsensical terms to roll over its loans from the EU and European Central Bank, which translates as “loans from Germany.”

Both its leaders and obnoxiously obstreperous members of the press have compared the current German administration to Nazis, either overtly or covertly. Sure, go ahead and call people you’re desperately trying to borrow money from Nazi and holocaust perpetrators. Hello? The war has been over for 70 years. Today’s generation of Germans scarcely needs reminding of their own history. Greece and Greeks would be better off examining Germany’s actions in the contemporary world.   

Markets also are waiting the minutes from the latest U.S. Federal Reserve meeting tomorrow for fresh clues regarding an expected interest rate hike.

We can’t imagine the policymakers will have shown more sensitivity to either inflation or unemployment numbers than they did in their press statement after the meeting itself.

Monetary policy will tighten, come the summer or early fall. When that does happen, we’ll have to call it as a bullish assessment of the American economy and thus good for equities and most commodities, but not for gold.

Any such action would indicate that the United States had entered a cycle of rising prices, prompting investors to buy more into the equities.

Ask this: where is core inflation going? It seems like nowhere fast. And unemployment? Yesterday, the New York Times said that since the end of the recession, the big city had added 425,000 new jobs. Yet the unemployment rate remains stuck at 6.3%. There are many tributaries feeding the stubborn UE rate: more and more educated people are going to New York, more and more are getting hired, but a lot of newcomers often can’t find jobs because they are competing with workers returning to the job hunt.

That trio of trends is being repeated in many places around the country. It’s still way too early to raise rates.      

Bottom line, a haven play for gold is a sketchy proposition.                         

The gold-price dip today comes just as China heads off on its week-long Lunar New Year, which could cause prices to deteriorate further as demand from the number two consumer country fades.

The New Year prompts gold buying for gift giving. Its buying period closes with a bang and demand for gold falls like a lead weight, leaving prices for the yellow precious metal exposed to further battering. 

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer