Markets Reacting To Each Other Still Struggle To Find Firm Direction

Gold seemed ready to stand its ground overnight but then crude oil, a bearish outside market, tumbled and helped drag gold down.

U.S. dollar strength also helped to weaken gold and indeed the entire precious metals complex. The metals are off their earlier lows, however. Palladium was hit hardest, down more than 2.5% in mid-afternoon trading.

The dollar has grown new volatility wings as the FOMC meeting nears next week. The likelihood that the central bank of the United States will raise rates seems slim to none in our estimation, but some people have to futz around hedging and testing the markets.

Downbeat U.S. data and a general drifty tone to the American economy seem destined to keep rates right where they are for some time.

We believe that what we’re seeing is not the threat of higher U.S. rates work its black magic on gold (and other markets) but rather the deepening acceptance that the European Central Bank will not expand their qualitative easing measures that now stand at 60 billion euros per month.

U.S. crude oil inventories catapulted up by 8 million barrels last week, said the United States Energy Information Administration (EIA).

The inventory build was more than twice the 3.9 million barrels forecast by analysts in a Reuters poll and significantly above the 7.1 million build reported out by industry group American Petroleum Institute.

Yes, distillates and gasoline stocks were down, but as we have discussed, that is expected as winter blend processing of gasoline begins and summer processing fades. There is an annual gap that opens then closes right around this time on the calendar.

A year from now, crude may be looking at the $57 to $62 per barrel range. That’s a good target fundamentally if demand picks up by mid 2016.

Oil is weighing on the Dow a bit, while the S&P 500 and NASDAQ are struggling to get into or stay in positive territory.

Quarterly reports are the bugaboo tripping up stock prices. Every day, it’s something.

Other companies that posted quarterly results Wednesday included Coca-Cola and General Motors. GM beat expectations on both earnings and revenue, but Coca-Cola sales fell short of estimates. GM shares rose 6% at one point in the day. Coke prices fell.

The overall conflict seems to be between sales and earning, the former disappointing while the latter is meeting or exceeding expectations. (That’s a broad generalization.)

If we were to stake out a reason, we would say it’s because U.S. exports have been crunched because of a stronger dollar, although that seems to be a headwind that is diminishing day by day.

Wishing you as always, good trading,