Hold On, I'm Coming

Gold fell down and broke its crown today, but oil is plummeting toward a rendezvous with destiny. The equities markets can’t decide what to do, having been up in the morning but now definitively down in mid-afternoon.

The ambiguities that stock traders are puzzling over have also affected the dollar, pushing it a bit lower. The greenback move, however, hasn’t been enough to really force gold down very much. Regular trading did that trick very handily. 

It’s all well and good to say that gold is being pulled along by oil in its descent, but that’s not quite enough. Gold is reacting to economic news that the stock market, because of the sinking price of oil, can’t interpolate.

The seemingly unstoppable expansion of U.S. manufacturing burst forth even stronger in numbers released today for November’s activity. It seems like a second wave of automation investment is beginning to pay off with everything from the manufacturing of string to toys, vinyl records to aluminum fabrication sheets improving – everything is picking up. There were some soft spots around the country in manufacturing, and of course, deeper automation does not produce many jobs. But, it brings the U.S. manufacturing economy front and center on the world stage. (It is already the biggest manufacturing power.)

Manufacturing grew at 1.1% in November after a rise of 0.5% in October. That is significant.

There was a blemish on the U.S. economic news report today, though. Housing starts were down, although when adjusted for seasonal factors it was not terribly meaningful.

So, gold reacts to those inputs, but, again, because of tumbling, tumbling, tumbling oil prices, the stock markets can’t. After all, energy represents 12 to 15% of the Dow and the S&P 500. Some analysts are calling the bottom in oil. We think that bottom is in the $50 (+/- 5%) range. But, a likely scenario is that we may see a long period where prices do not go up, but rather stagnate.

Finally, starting tomorrow, the Fed meets. The question as always is, “What tune will they call?” Rest assured that it will be playing, “Hold On, I’m Coming.” Although they won’t actually be “coming” in the sense they will not be “raising rates” for some time yet.

Europe stagnates; China scrambles; Japan backslides. Someone’s got to keep the finger in the dike. 

Wishing you as always, good trading,