Losing Their Cool

Like so many of the markets, gold seemed befuddled today. Lowering volume, choppy trading that surged then receded, and indecision based on flying rumors about what the Fed might or might not do, hampered gold.

In late afternoon trading, it is up about $1.50, although it is well off its overnight highs, currently trading at 1196-97.

Part of the confusion in markets is being caused by the continuing economic deterioration in Russia. After two smaller, “warning-shot” rate hikes, Vladimir Putin raised interest rates to 17%. Any takers out there ready to buy a piece of Russian debt?

Oil steadied a bit today, most likely because of the psychological support level of $55 in WTI crude. The usual pattern has been recently for WTI to slowdown its descent and then for Brent, the benchmark in the commodity, to tighten the price gap between the two.

Very quietly, not exactly under radar but stealthily nonetheless, interest rates on the three major bonds – U.S. Japanese and German – have been sliding toward shocking lows. The American 10-year is right above 2%. Japan’s is at 0.365% and Germany’s below 0.60%. Breathtaking, indeed.

We don’t believe that the Fed is going to actually lower rates tomorrow. That would be foolhardy, given the rest of the world’s situation. There is a strong likelihood, however, that the U.S. central bank will eliminate or start to eliminate certain phrases in its guidance as it prepares the financial community for the effects of higher rates later in 2015.

That has not prevented everyone today from running around like peasants in a village in the Middle Ages who have seen a meteor flash across the night sky. Everyone on the street – whether in New York, London, Tokyo or Hong Kong – is scurrying about like frightened maniacs, not sure of what to do. Only Shanghai held cool, driven higher by good news in its phone-manufacturing sub sector.

Let’s see how sober the Fed is tomorrow. Meanwhile, fundamentals remain too cloudy for playing in precious metals.

Wishing you as always, good trading,