Markets Reconnoiter After FOMC And Gold Stumbles

The price of crude oil declined to its lowest level in three months as stockpiles build and production sails ahead with no regard for market forces. (Although that is approach can be complicated. Pumping more maybe a strategic hedge and part of a waiting game betting prices will eventually rise.)

In raw numbers, Wes Texas Intermediate fell to $41.14 per barrel, down 1.90% in round numbers.

On top of that, with the world economy in irons – a sailboat stuck with no wind – demand is slack. Moreover, alternatives keep pressing their growing advantage. Gasoline (RBOB) is suffering as well, trading 1.31 per gallon, off from the June 2014 highs of 2.70. Now that smarts.

The steep toboggan-ride down for energy prices is affecting oil companies globally and therefore affecting index averages. The Dow especially feels the drag among the U.S. equities benchmarks. Some analysts are calling it the beginning of a technical bear in crude.

The Dow was off 100 points around 11 this morning but has slowly been coming back. At 3:45, it looks to finish even. The S&P 500 and NASDAQ are holding steady to slightly up. (Oil is not as important a component for the S&P and it is non-existent for NASDAQ.)

In spite of a quietly weaker dollar (based mostly on questions about Japan’s monetary policy), gold was off by around $5.00. In fact, the entire precious metals complex is off on the session, silver being taken down most, by 0.85%.

Given the weakness in stocks, it’s intriguing that gold fell. We think it was a bit overbought yesterday and so has fallen victim to mild profit taking.

The Treasury Department auctioned off $28 billion in new 7-year issue at a yield of 1.34%. Yields are low over at the 10-year as well, so business is brisk. A lot of the buying is simply repositioning but bonds can be a bellwether for gold. The yields need to be closely watched.

We are in an interesting crease right now, what with the Fed’s last meeting just passed and another one not due till September 20-21. The gap is now eight full weeks before we hear brand-spanking new news release from Yellen, et al.

We will be dependent on data, naturally, but we will be unusually vulnerable to side-talk by various FOMC members.

A couple of things to remember till they meet again:

• We will see and sift the minutes from yesterday’s Fed meeting.
• Only one voting member voted for a rate increase on Wednesday, July 27.
• Only the opinions of voting member are meaningful. The statements of the rest are some sort of cross between PR and pro forma fulfillment of duties. (“I’m a Fed President so I guess I better say something.)
• The Fed is cautious and may be even more cautious right ahead of a presidential election.

Wishing you as always, good trading,