Light News Day In Markets

Gold struggled today even though it was buoyed up by a decline in the U.S. dollar, which, of course accounted for whatever vitality there was in the prices. Without the dollar assist, gold would have been off almost $12.00.

There is little in the way of fundamental news to account for the decline. One speculation centers around the EU and how their version of QE is just beginning to bite. Indeed, European bourses were up today, the DAX acting particularly boldly with a 1.25% rise. American exchanges were soft, but the movement is nothing of consequence. Asia was mixed.

Surprisingly, crude oil bounced off its lows from last week even though some OPEC officials are cautioning that oil could go as low as $30.

A friend of ours asked over the weekend why gasoline prices ticked up a bit, with oil still so low. The very simple answer is that gasoline refining, storage and transportation have a set of built-in fixed costs. At just under $2.00 per gallon that becomes a major factor. Another aspect of the rise is that, as demand improves – a function of low prices – the price follows. More people are chasing a similar amount of gasoline. There is also refining capacity to be reckoned with. As processors reach their production limits and people drive more, the price goes up. It’s not entirely rational, but the law of supply and demand can’t be easily squelched.

We are surprised that, with the U.S. rattling its saber over Ukraine and the various Russian shenanigans there in the eastern part of the country, that gold did not have more of a haven appeal. The situation there is very dicey. The last thing the world needs is a real war between NATO, other western-leaning powers, and a jingoistic Russia. Ukrainians want a European-leaning nation. This does not mean that it becomes an “enemy” of Russia. Yet the government officials of Russia (also misleading its people) have framed their invasion of Ukraine as part of a neo-Cold War scenario. This is a dangerous mistake on Russia’s part and will only lead to further damage to their economy and prestige.

Elsewhere, Japan has said it will punish ISIS for the beheading of two of their nationals. This does not affect the price of precious metals directly, but it should give pause to the homicidal maniacs in and around Syria. Eventually they will alienate all decent peoples and those peoples will unite to crush them. In the long run, regardless of how and when that fight begins, the price of gold and silver will be affected.

We shall see how President Obama’s nearly $4 trillion budget plays in Congress. His idea of taxing American corporation’s foreign profits is a good idea if done in a limited fashion. The infrastructure funding it would provide is crucial to America’s continued success. Someone’s got to pay for this. It is also unfair for a company to enjoy the benefits of America’s economy, culture and countless freedoms and not pay a fair share to harvest those fruits.

The budget will bear on taxes, growth, and Fed policy. So stay tuned. Wishing you as always, good trading,