The Right-Wing Trickle Down Effect

Fundamentally, it's hard to get a grip on where the precious metals are going for more than the next 24 hours. News flies hot and heavy. Today's "yes" is tomorrow's "no." One day at a time, as the saying goes.

Worry is already starting to ripple through the female population of the United States regarding holiday shopping, with a super majority saying that they are considering curtailing their retail-buying activities for Christmas because of the uncertainty in Washington. This sort of fear is rational and is already affecting big ticket item producers like those who build planes, heavy construction equipment and natural resource extraction equipment. 

We have not yet felt the blow in the employment area. But, at some point, all the laid off Federal workers will show up in the stats, as will all the ancillary effects on the labor force. Some of this is connected to uncertainty but a lot is due to a more direct influence. Laid-off people spend less and that means their neighborhoods see less money spent so fewer people are hired.

Additionally, direct government contract work is shutdown so those people are hurt. An article today in Advertising Age magazine, the industry's trade publication, pointed out that the Federal government spends $1billion in advertising, mostly for creation of public service ads and broadcast spots. That makes the Federal government the 50th largest advertiser in the country. The central government underwrites another billion for states' various promotional budgets. 

All this slows down the economy. Some say the cost will be a half per cent growth decline. And that's just the shutdown. The debt ceiling, if not raised, could hurt the country's credit rating, thus making everything more expensive.

However, Moody's seems to think that it simply can't happen. Moody's as we know, also gave the bundlers of shabby mortgages a high rating for their derivatives and thus helped to precipitate the housing crisis, which led to the Great Recession.

Mercifully, today the dollar and gold resumed their usual relationship - moving in opposite directions. So, with the dollar down, gold went up. 

The 10-year Treasury bill slipped again today and the promise, or threat, of a yield bubble has begun to evaporate. This sliding of treasury notes' yield is not confined to the U.S.  Both Japan's and Germany's rates also declined today and have been declining.

The price of gasoline is falling nationwide, so when we next get to see official figures - when the government re-opens - gas prices will be factored in to the broader index of inflation. The lower inflation rate, a decline in employment and a threat to spending will tell the Fed - yes... keep QE3 in place.

The only fundamental problem we find with gold right now is that it seems to be basing its movements on how the equities markets are doing, which are not doing great but not too terribly. They are volatile. So, gold traders are being buffeted by classic risk-on, risk-off perception.

One day at a time. 

Wishing you as always good trading,