Running In Place

Gold and silver fought off the best efforts today of profit-takers who looked to cash in on yesterday's sharp rise in prices. The metals are about even or dealing with a small loss with an hour to go in afternoon trading. 

A softer-than-anticipated report of U.S. services sector vigor helped gold stage a rebound. The Institute for Supply Management's (ISM) non-manufacturing purchasing managers' index fell to 54.4 in September from 58.6 in August, missing forecasts of 57.0.

The weaker economic data renewed hopes that the Federal will be forced to delay winding down the $85 billion-a-month bond-purchasing program, said Dave Meger, director of metals trading with Vision Financial Markets LLC. "It's leading investors to believe that the Fed will not taper at the end of October, and will not taper at the end of the year," he added.

Of course, the shutdown and budget crisis are adding volatility to all markets. The precious metals are no exception. This week has been a roller coaster ride of the most hair-raising sort. The weaker dollar stance versus the euro has also helped gold, accounting for a large share of today's pricing. The dollar has reached an 8-month low against the euro. 

This morning's London Fix (the global benchmark for valuation and shipping contracts) showed daily volatility in the gold price stood near last week's 2-month highs at 25.7%. Silver price volatility (a measure of the violence in its daily swings last week hit its highest level since May at 43.9%, retreating to 39.2% by Thursday's Fix in the London bullion market.

The Chicago Board Of Trade's VIX, its volatility index, jumped more than 10% today, an indication that we shall see more swings in mood and action in the days to come.

People on Main Street are worried and rushing money here and there; investors and traders have the first symptoms of the heebie-jeebies.
Whether it's related to the crisis, we're not sure, but someone tried to ram the White House gates, was thwarted, then went to the Capitol where she was shot. Events like this, though isolated, add to the sense of chaos.

Although he does not vote on this term's FOMC matters, Dallas Fed President Richard Fisher was jawboning against QE3 again. He hews to the outmoded view that 2% inflation is a magic number that solves all economic problems, when, in fact, it is a ridiculously low number. Anyone who trades as a precious metals bull knows and appreciates that. 

Right now, wages are stagnant and the so-called non-core CPI is modulated. The inclusion of fuel, food and healthcare tells a different story, but even under the broader measure, inflation is a tame as newborn kitty cat. 

About the only sensible utterance from Fisher was this: "Uncertainty matters," he said, "A lot." 

One area that should be remembered is the world of physical gold purchasing, which has been uncharacteristically soft for a while. India seems to be getting over the import tax hunt and buying of physical gold for the festival season is picking up. 

Yet in China when gold prices fell back in September the premium (above market) did not rise as might have been expected. That suggests a non-price-related weakening of Chinese demand. Sometimes people simply don't want to buy all that much gold.

Ten-year Treasuries in Germany, Japan and the U.S. all saw their yields drop again today. The summer rise in U.S. yields has abated for the moment. The conventional wisdom (which we articulated months ago) is that there will be no tapering come October.

Precious metals bulls, our mantra is this: inflation, no tapering, and political danger signals. 

Wishing you as always good trading, 

 Gary S. Wagner 

Executive Producer