No Revolution But Plenty Of Convolution In Gold And Equities Amid Hard Falling Oil Prices

Gold struggled today, bumping up against a number of factors that combined to keep it from crossing the $1200 threshold, which would have meant fresh buying. Pushing past that level also would have also meant that speculative long buyers would have been crowded out by traders and investors who are true believers in the new bullish posture of the yellow precious metal.

Early in the day, the U.S. dollar rose against the euro with an assist from the European Central Bank, which helped talk their over-valued currency down a bit. In mid-afternoon trading, however, the greenback is up only a modest 0.2%. That’s enough to push the entire precious metals complex down. Silver and palladium are suffering particularly badly today. 

The dollar had climbed 0.4% against a basket of currencies and rose against the euro as investors waited to see if the European Central Bank would offer more stimulus at a meeting this week.

On the equities front, U.S. bank Morgan Stanley reported a slump in quarterly profit, adding to signs of woe among the world's biggest banks. Leaving aside the struggling banking sector, we’ve noted something in U.S. earnings reports that we find troubling.

Of the roughly 60 companies that had reported as of Friday's close, 71% beat Wall Street's estimates for EPS, but only 47% beat on revenue. Strong earnings and weak revenues could be pointing to a contraction. Why? If you can't increase revenues but can still drive profits up, it means you’re cutting costs. The easiest and most effective way to do so is by cutting personnel costs. (The other way to have a serious impact on bottom line is to create an innovation of spectacular dimensions.)

Yet another factor came into play today in all markets. China data (which may be discounted by 30 to 50%) seemed weak today. It reflects the continuing slowdown in that enormous country.

J.P. Morgan Chase’s Jamie Dimon said today that it would take some time for China to overtake the United States as the world’s largest economy due to a number of internal issues. He also pointed out that, when all things are considered, China’s total dollar growth is not really significantly more than that of the United States.

That is to say that once you adjust China’s “growth data” to accurate dimensions and compare it against the growth in the United States, China may be gaining on the American behemoth but not by much.

Also dragging down U.S. equities today was the price of crude. The fall of almost 3% in price was prompted by the rising dollar, predicted rising inventories and Act I, Scene I in the lightening of sanctions burdens on Iran, which naturally includes export of petroleum products.

Additionally, as gasoline refiners’ refitting and maintenance season ends (the time when shutdowns occur while summer blend manufacturing is switched to winter blend gasoline making) gas prices will rise.

So, we had somewhat of a convoluted Monday in the markets.

Wishing you as always, good trading,