Herding Cats

Up, down, trying to get the feeling again...

         - Barry Manilow

No one likes what's been going on in Washington. For some time, we will be dealing with the fallout from the brinksmanship that has been playing out for the last month. And there is another future battle barely over the next hill. That is, should Speaker of The House John Boehner be able to herd his cats into a vote. If he can't, well, the United States will set sail for the uncharted waters of default and every person on the planet will pay the price.

What the long term fundamental effects will end up being for gold are hard to predict at this very moment. Intuition tells us that the ramifications will be good for gold, although a lot of excess money will be sopped up in higher interest rates and some money will sit on the sidelines waiting, waiting for the next crisis that will either happen tomorrow or beginning right after the New Year, depending on how adept of a cat herder is Boehner. 

One thing we do know politically is that the Tea Party will be strengthened in its core districts, regardless of how embarrassing their behavior has been. "Give the people hell" is not a big idea, it's not a strategy and it's not a very good tactic to get what you want in Washington. Moderates and center right Republicans will be spilling a lot of the proverbial ink in the coming weeks to distance themselves from the radicals. 

Sadly for the whole country it means that those centrist Republicans - hard working, good thinking, patriotic men and women - could very well find their seats vulnerable to Democratic candidates come next November. Ironically, that could give the Democrats a majority in the House and then watch the legislation fly and listen to the Tea Party howl.

Gold has moved off its early lows to close the day at up almost $2 but seems to be indecisive as to the direction it wants to take.

The interesting aspect of the (presumed) next step for the U.S. is that the follow-up crisis is actually scheduled. For the nonce, we await the disheveled, disarrayed House Republicans. 

"If an agreement isn't reached, we might see a technical default, but there is a view that this won't be a real default, simply that the U.S. has failed to get to an agreement on time, and any potential support to gold would be short-lived," Mitsubishi analyst Jonathan Butler said.

 From another vantage point, a snapshot of the physical market is provided by Reuters:

"Demand picked up as gold prices traded near three-month lows. Premiums - the best way to measure demand - rose in Asia. Gold premiums in India, the world's biggest buyer of the precious metal, hit a record $100 an ounce due to a shortage of supplies to meet festival demand.

In China, premiums in the Shanghai Gold Exchange climbed to more than $20 an ounce from about $7 two weeks earlier."

It is being reported around the world, too, that the market in U.S. gold coins is very brisk and we are again on the verge of a shortage following a glut just a few weeks ago. 

In the midst of all this, the Fed's September "Beige Book" on economic activity was released and the diagnosis for the American economy is "fair to middling." Of greatest relevance to us as precious metals traders is the continued anemic job growth. Job creation and employment stats are one of the prime drivers of FOMC policy. Weak conditions point to putting off tapering of QE3. The Beige Book is carrying more weight for the moment because so few Labor Department and Treasury reports have been issued due to the shutdown.

The one theme that the Beige Book shares with almost every analyst with a decent brain who follows the news is "uncertainty." It's the condition most businesses have cited when it comes to why they are not growing faster now, or planning not to grow in the next six months. 

The Golden Dream - a link you might enjoy