Lock 'Em Up Till They Reach An Agreement

discuss what is real and what is not.

It doesn't matter inside the gates of Eden.

      - Bob Dylan, Gates Of Eden

As if precious metals traders did not have enough to think about given the economy and the Fed, the princes and princesses inside the gates of Washington have handed us another grenade to play with.

The volatility we have seen this week is due 100% to the lack of constructive dialogue and conciliation in the American capital. What can we make of this fundamentally? We can be cynical and say that a damaged U.S. economy - one losing $300 million per day - is good for gold and silver because it will stem any rush the Fed might have to trim QE3. Indeed, it might prompt the Fed to raise the stakes. If Congress isn't watching the store fiscally, that leaves only the Federal Reserve to work on opening up the credit spigot.

Among the direct effects of the shutdown is the delay in release of labor statistics today for the month of September. The Bureau of Labor Statistics is not closed; they are just moving glacially, working with a skeleton crew. No input, no output. Employment/unemployment figures drive gold prices especially because they contain a hint of how the Fed might react on its bond-purchasing program and tapering.

Investors today viewed the dollar as oversold - the over-sell due to jitters concerning the shutdown - and snapped up bargain-priced greenback positions, which sent gold falling further. All of today's drop in gold is attributable to the dollar's rise. Gold and the dollar move inversely.

We remain unsure what the extreme right wing of the Republican Party thinks will happen. As we said earlier this week, Obama's signature legislation is not going away. In fact, from reports beginning to roll in from around the nation, sign-ups are at huge levels. 

Equities were up in New York and in Europe today, which prevented any money standing on the sideline from heading toward gold. And, in spite of the dollar's rise, crude inched up. It, too, had been oversold. 

When the FOMC meets in a couple of weeks, it may be playing with a deck missing two or three cards. Official statistics on the workforce may be very late or may be partial. Anecdotally, government-related private contractors and business near military bases have already reported severe cuts to their staffs. Lockheed, for instance, today laid off 3,000 workers. Some estimates say that by the middle of next week the layoffs among these kinds of workers may number as many as 300,000 people. Eventually this will seep down to affect schools, hospitals, and agriculture, which rely on government payments. 

Put all this on top of the 800,000 workers in the government itself that have already been laid off and you have the makings of a calamity. 

The Fed will have to stand pat. 

Wishing you as always good trading,

 Gary S. Wagner 

Executive Producer