More Good News On The Gold Front

While fundamental analysis is necessarily confined by events (including rumors, fears and passing asteroids), the good news in gold is that it continues to show a life of its own beyond acting as a safe haven.

As of 3PM in New York gold is up over 2.00% and that despite a small loss created by a stronger U.S. dollar. Silver and platinum were also up while palladium once again is flirting with the $500 per ounce mark.

The dollar is up on a range of news. Some would have it that it is mainly because of the rise in oil – or at least its stabilization within a range – but we feel the release of positive data today is the main driver. If, indeed higher oil were the impetus for a stronger greenback, gold and silver would not be up as much. (And the dollar would be up much more because of better risk appetite.)

Positive U.S. data drove stocks higher early in the session. Weekly jobless claims dipped to their lowest reading since November, while factory activity in the Fed’s mid-Atlantic region contracted at a much slower pace in February. Those two pieces of information imply that the Federal Reserve could still keep rate hikes on the agenda this year.

But, late in the going equities headed south and the U.S. 10-year bond saw yields retreat as face price rose, which implies there is lingering uncertainty among the biggest of the big boys.

Oil is still leading equities around by the nose, no matter what the contrary viewpoint that is being put forth says. U.S. crude oil futures came off session highs but managed to settle higher, up 11 cents at $30.77 a barrel, after weekly crude inventories rose by 2.1 million barrels. 

All the brave proclamations and breast beating by OPEC and the panicking producers outside the cartel will have to translate into firm action before prices permanently stabilize and move up. That will require North America to play ball.

Statements made by Federal Reserve officials practically on a daily basis are stoking more speculation concerning what moves will be made at the central bank’s March policy meeting.

Late Wednesday, St. Louis Fed President James Bullard stated that it would be “unwise” to continue to raise rates given declining inflation expectations and recent equity market volatility. Bullard, a voting member on the Federal Open Market Committee in 2016, was one of the chief rate-rise hawks throughout almost all of 2015, so his misgivings represent a key shift in sentiment.

Let’s return to gold to close out today’s look at fundamentals. Its rise is quite remarkable because it has come in the face of steeply declining (but still high) volatility as measured by the VIX at the CBOE. The VIX is trading around 21.50, down from January’s recent high of 31.

Wishing you as always, good trading,