The Iceburg

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The Grateful Dead once sang that, "When life looks like Easy Street, there is danger at your door." Today's trading action in gold certainly proved their point.

Yet, to our way of thinking there is something seriously amiss with the analysis that says the U.S. economy is picking up so strongly it may warrant a rate increase.

The piece of news that particularly touched off the selling spree was that the U.S. consumer price index grew at 0.2% in March. This equals inflation. "Experts" were expecting 0.1%. As we are wont to do, let's average the two months and see what we get.  

Well, 0.15% x 12 months equals a yearly inflation rate of 1.8%. We advise leaving the noisemakers in the closet for the moment and see what April, May and June bring. Then we can see a 6-month trend rather than a snapshot.

The initial sell off then triggered sell orders and we plunged as low as 1288, a level gold is now considerably up from in afternoon trading.

Bloomberg reported that "Gold benefited from the escalation in tension between Russia and the Ukraine, but upbeat U.S. economic data put a damper on the safe-haven rally," according to Sun Yonggang, a macroeconomic strategist at Everbright Futures Co.

Hello? There is actual fighting in the streets in the eastern Ukraine. It seems absurdly irrational to bid gold up on the fear of war and then sell off when the war begins. But, many games are played in the markets.

As they are in world geopolitical stratagems. Russia buzzed a U.S. naval ship, something a teenager would do on a bad, bad day. It's exactly the kind of incident that starts wars. Passing 500 feet over another country's ship is an invitation to battle. The Russians also started chastising the Turks for their outspoken opposition to the Crimea invasion/takeover. And they dared to criticize the Turks over how they are policing the Straits. In case you did not know, the Turks despise the Russians.

One other factor is floating around today's sell off: physical demand is soft in China and India. In the former, it is because their economy is softer than they are letting on. In the latter, Indians are holding on for lower prices.

As always, wishing you good trading,

Gary S. Wagner - Executive Producer