Late News Pushes Gold

Are the Russians begging for a war with the E.U., U.S. and other industrialized societies? The massing of troops on the Ukrainian border, reported only mid-afternoon by  The New York Times seems to indicate the answer is "yes."

The Russians seem to have particularly inflamed German chancellor Angela Merkel, who, it has been mistakenly reported too often, has a "special" relationship with Putin. In fact, the relationship is that Merkel speaks Russian but has gone on record any number of times denouncing the neo-Soviet-style boss. (Let's remember the war of secession in the U.S. - everyone spoke the same language.)

She has said that a third round of sanctions will go through on Monday if a significant change in Russian behavior does not occur.

The Times said:  "For her part, Ms. Merkel assured reporters that the European Union would not flinch. 'We are very rational, very calm and very much in accord,' she said after a meeting with the visiting Czech prime minister, Bohuslav Sobotka."

Russia is overplaying its hand and their moves could hurt the world economy badly but hurt the limping Russian economy much worse.

All three American equities exchanges and the three European stock exchanges are down significantly today. Asia, which was not affected by the news, saw two of its three exchanges down modestly, while Shanghai was up.

Tellingly, oil is up only 25 cents per barrel and natural gas is down 2.25%.  

The headwind today for gold today was the unexpectedly rosy weekly unemployment claims, which dropped markedly when experts had been predicting they would rise. Is the Big Winter of '13 and '14 finally ending psychologically, if not quite meteorologically?

The scuttlebutt around Asia is that, even with current higher prices, Chinese citizens, companies and the governments are looking to expand their holdings in gold with an eye on the weakening Chinese economy.

We all know that the higher the level of corruption in a country, the worse off it is economically. Western countries tend to rank high on "cleanliness" regarding corruption, as do countries like Japan, South Korea and Singapore.

China officially ranks high, but other measurements by the IMF and similar institutions rank China low on structural corruption. When a country with poor structural corruption grades goes south economically, it tends to spiral because there is no check on financial shenanigans.

Structural corruption is, by the way, different than people flat out breaking laws. Structural corruption enters into economies when, for instance, it is never said that my brother (I am the chief of a country) ought to get the big construction contract, but somehow does, even though a blind bid process. It doesn't have to be said. It is understood. Such activities might add 15 to 20% onto the cost of doing business in a country like China and that money comes out of the consumer's pocket and goes... well, generally overseas.

Now it's going into gold and the surge may be even stronger.

We shall see. And then there is the FOMC meeting next week. The fear of tapering has been far worse for gold bulls than tapering itself.

In fact, since the announcement on December 18th last year that tapering would begin, gold has done quite well. The effect of tapering seems to have been stabilizing.  

Now, let's circle back around to the Russians. Tapering will affect all emerging economies. A rise in interest rates in the U.S will really hurt Russia. Cheap money helps lousy borrowers. Tight standards help sound borrowers.

There's no law that says anyone has to lend money to Russia. Watch the ruble, watch the Europeans find another natural gas source. Watch Russia back down after more chest thumping and some sort of limited military action.

 As always, wishing you good trading