Not Even Binary

Laozi, the 6th century B.C. scholar knew about the future. His view of it concludes today's fundamentals section of our email.

 One set of stellar data for the U.S. economy and one set of moderately negative data, but traders and investors focus on the former while ignoring the latter. From a world composed of 1's and 0's, we have moved to a world of only 1's.

The Commerce Department reported that U.S. retail sales rose 0.7% in November, beating market forecasts of a 0.6% increase. Core retail sales, which have automobiles stripped out of the stats, rose 0.4%, well above forecasts for a 0.2% increase.  

This, naturally, sent the Fed watchers into a sell frenzy, deeming that those figures were enough for the FOMC, which begins its next meeting on Tuesday, to begin tapering of QE3 bond purchases.

But hold on just a darned minute.

The U.S. Department of Labor reported that the number of individuals filing for initial jobless claims assistance last week rose to a two-month high of 368,000, well surpassing expectations for an increase to 320,000 from the previous week's revised total of 300,000.

Some experts say that is because around holidays the labor market is quite volatile. Hello? The statistics are seasonally adjusted, which means that there is a skew to every week's data based on previous years' comparable performance for a given week.

One item in the news does have a real impact on gold prices, however. The U.S. Congress appears ready to pass a budget bill that both sides more or less agree upon, except for the extreme right wing of the Republican Party.

The deal could signal the end to gridlock politics, which helps soothe the minds of investors.

For gold, it signals one more reason not to view the precious metal as a safe haven.

There is no denying the American economy is improving, but with retail sales going in one direction and employment going in another, more sober minds would reckon that tapering is not justified in the immediate future (6 days from now when the FOMC meeting ends).

"Those who have knowledge, don't predict. Those who predict, don't have knowledge."

                    -Laozi

As always, wishing you good trading,

Gary S. Wagner- Executive Producer

chart.jpgMarket Forecast Today's dramatic price decline has taken some analysts by surprise, but if you look very closely there has been handwriting on the wall. In yesterday's opening letter we spoke about the fact that there was a tremendous outflow in exchange traded funds in gold (ETF GLD). Also throughout this week we have identified candlestick patterns in many of our intraday charts which revealed that the bearish market sentiment was still prevalent and pervasive in the markets.

 Although we exited our short position a little too early, we were still able to not only pull profits on the trade, but in overall annual returns, we went above 140%. That being said, there is no doubt we could have issued a trade alert right after we saw the $32 climb in gold. We mentioned at that point that we wanted to wait for the dust to settle to plan our upcoming strategy, and before the blink of an eye we saw gold again under dramatic pressure. All things being equal we are more comfortable with a system that has delivered profits year after year, than with catching every trade and not having a profit overall. With that in mind we will see if gold finds any kind of support at 1225 and plan our strategy accordingly.