From Head-Winds To Fed-Winds

Although there are still analysts hand wringing over what will surely be the Fed's decision to stand pat next week on the maintaining of QE3, it is becoming quite clear that the American economy is slowing a bit, although not dangerously. Of course, for many people, the recession that began in 2008 never stopped at all.

"Things are sluggishly moving here," said Thomas Capalbo, a precious metals broker at New York futures brokerage Newedge, following weaker-than-expected consumer confidence and durable goods data on Friday morning.

A surge in aircraft orders, a volatile sector, was the main factor pushing overall orders of durable goods to rise a more-than-expected 3.7 percent last month, data from the Commerce Department showed on Friday. Otherwise, the report was not good. The slowness reflects a decline in military spending in the future. Many things the military uses - tanks, guns, trucks, even appliances in living quarters - will see less government money flowing into industry. 

Aside from the across-the-board budget cuts that came via sequestration, the lowered spending from the winding down of two long-running wars is affecting the durable orders.  Because of the government shutdown and perhaps because of the anticipated second round of fighting in Congress, consumer confidence in the U.S. plummeted as well. 

All this has served to weaken the dollar, a good thing for gold. 

The trick for those viewing precious metals fundamentals is to somehow discern whether or not we're in a longer trough or if we've just hit a rough patch. The Fed's quietude should tell us something. They're not a panicky crowd on the FOMC, but the stillness does not bode well for the economy.

However, because of the artificialness the stimulus creates, there are many pathways open to investors. Gold is one of them, though equities seem to be holding their strength as the investment du jour. 

U.S. stock indices were up again today as were Europe's for the most part. Asia was down across their three measures. Crude was up marginally, 10-year yields were down quietly. Base metals for the most part were also strong today.

Kitco's gold analyst/investor survey shows that 20 of 26 respondents see gold rising next week. They are naturally pinning their positions on Fed action, or lack of action more accurately. It is more important for precious traders to watch what is happening on the bedrock fundamentals. How much is being produced? How many people are employed to produce? Is their pay rising or falling? What is real inflation? What the heck is happening in the housing market? What is going on in other commodities markets, especially industrial commodities? 

We analyze these issues on a daily and weekly basis for our subscribers. We caution on watching the FOMC too closely because one never knows what the after-meeting news release and then the minutes to be released a few weeks later might say. These statements sometimes operate quite independently of action taken or not taken. And, we have no idea what dissenting members of the FOMC might say extramurally between meetings. Some tend to shoot their mouths off with reckless abandon. 

So, aside from the valuable technical advice we give to subscribers, our main counsel fundamentally is that it is best to watch macroeconomic movements, even if it occasionally means taking a bit of pain in the trading process. It's not a sprint. It's a marathon. 

Wishing you as always good trading,

 Gary S. Wagner - Executive Producer