The "If" Economy

The "If" Economy 

Equities rallied today to take back a chunk of the losses suffered yesterday. That was enough for gold to feel pressure, especially since the dollar strengthened as well.

One has to wonder, though, what the bargain hunting meant for stocks. There was some good economic news released today, but it was far short of spectacular. Retail sales rose 0.2% in December but the same measures for October and November were revised downward. Inventories were up more than expected. 

Economists will take all this into account when they begin speculating on what the Q4 2013 growth rate was.

Brad McMillan, chief investment officer for Commonwealth Financial, said today that "investors should be cautious about the stock markets this year, especially as our research shows that more than 80% of stocks on the S&P 500 are trading above their historical price-to-book valuations." 

Incoming members of the FOMC at the end of the month, Charles Plosser (Philly Fed) and Richard Fisher (Dallas Fed) both said that tapering ought to speed up or even be dropped completely this year. Some analysts said their inappropriate chatter affected gold, but that seems inaccurate - equities were untouched by their commentary and equities have much more to lose from such intemperate moves than does gold.

Gold is in a fair and useful pricing right now for traders. Equities are trading on the edge of the ionosphere and ready to lurch forward into space. Or tumble to Earth in a fiery ball.

Adding some fuel to the bear fire, Deutsche Bank revised their 2014 forecast for gold down to $1192. Only a few weeks ago, Deustche was becoming bullish in a mild way. 

There was also a fair amount of technical buying not just in equities but in crude and in U.S. 10-year notes. Uncharacteristically - it usually trades in tandem with gold - crude rallied in a small way today. As the dollar strengthened, pushing down gold a tad, government bond traders saw an opportunity to bid up the paper.