Not The Whole Picture

We conclude a down week with little fundamental news to speak of.

Blame it on the Fed's March news conference, if you'd like, although we feel that was the pretense rather than the underlying cause. An overbought market is probably the real culprit, gold having risen so high so fast.

But even that is not the whole picture.

Enter Ukraine, Crimea and Russia. The tensions over that eastern European region gave gold a powerful boost. Like most crises, what goes up, must come down. Short of a full-scale shooting war and drastic economic sanctions, the international situation could not reasonably have given gold bulls much in the way of a tailwind for very long.

We have said, though, that many sore points remain and the crisis could burst into flame again.

Interest rate jitters are also a very powerful suppressor of gold prices. Low interest rates steer people away from any instruments that depend on a rise in those interest rates. Plain old savings accounts usually suffer most. The thing about cash is that it can't grow beyond whatever the interest rate yield is on your money. If the bank is paying 1.75%, that's it.

Low interest muni bonds are another case in point, although a good deal more complicated than savings accounts.

Equities may pay a dividend, but they also may grow in price. Gold pays no dividend but it may grown in price.

The simmering down of the Crimea ruckus also allows analysts and investors to look at the more fundamental issues in various economies.

The U.S. seems to be expanding faster and is doing so throughout its entire system. Europe, while still stifled somewhat, is a rich nation moving along at a decent if uninspiring clip. The only area that seems to be giving cause for concern is China, which is still growing wildly, but has slowed dramatically.

Focus on the U.S. + E.U. + other advanced economies should always be topmost in mind. Proportionate to their aggregate population, their output and creation of wealth is staggering.

Of the roughly $72.5 trillion in world GDP, the above-mentioned entities produce about 45 trillion of that total. Together, those entities represent about 13% of the world's population.

It doesn't take an expert to understand that watching those economies is crucial to any market analysis. And gold is a crucial component of world finance. 

As always, wishing you good trading,