It Is Not So Good For The Digestion

The precious metals digested the news gleaned from the FOMC’s minutes and, for most of the morning and into early afternoon, the metals took heart.

The only problem is that the dollar, the almighty dollar, also sniffed out its messages from the same minutes and got on its horse and rode again. All of the loss in gold today was due to dollar strength, or more accurately, due to euro weakness. The buck hit a nine-year high against the European currency.

Indeed, the dollar was up against the three other major benchmark currencies.

The equities markets was of no help to gold, not because of the specific rise on the day but because the two days of triple-digit up-moves are signaling that we are, for the moment, in a risk-on situation. The Dow is up over 8% on the year now. Those who fell out of the market at the end of 2014 are surging back in.

WTI crude oil found steadier ground, but Brent was 0.66%. As we’ve said, while it is always helpful to keep an eye on oil, gold has uncoupled from oils trading patterns.

Bruce McCain, chief investment strategist at Key Private Bank made these observations on the Fed and ECB: "There is enough slack in the overall global economy and the U.S. economy to keep the Fed more inclined to keep rates low. They'll probably feel the need for [it] some time in 2015 because they've signaled that, but probably not until late in the year. With the Fed reemphasizing in the minutes that they are concerned about overseas markets, investors will more explicitly factor in what is going on in Europe and Japan in coming weeks.”

It’s not our usual role to play soothsayer, but we’ll venture a guess about Europe.

It is entering a time of political and economic turmoil. As disjointed as politics in the U.S. appear, in many ways America’s woes are superficial. (Witness that job growth is found most strongly in the small business sector. That means the little guy has faith.)

Europe has structural problems, and an anti-immigration mood that goes far beyond a “they’re taking our jobs” attitude, which is the basis for anti-immigrant sentiment in the U.S. What is gripping Europe is fear of the future, an aging population, and fear of Islam. The fires of hatred were fanned by the murders in Paris yesterday. Additionally, for the last 400 years, Europe exported population. From its inception as a grab bag of colonies in the 1600s, the U.S. has been built on immigration. The U.S. may struggle with its new populations, but ultimately it will rely upon past experiences to process the issue. Europe has – literally – no experience.

We all need to keep a close eye on the continent that remains our most important partner and is the locus of most of our oldest friends and important allies. 

Wishing you as always, good trading,