Still The Dollar And The Equities

The pattern we've seen fundamentally in the current rally is continuing today.

U.S. equities decline and the dollar drops. Although, there is evidence forming that what we are seeing in the stock markets is a dip and not a full-blown "correction." Nevertheless, it has been good for gold bulls, the side of trading we are in on at the moment.

Perhaps the most positive thing for equities over the weekend was a set of comments by Fed Vice Chairperson Stanley Fischer.

"If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise," the U.S. central bank's vice chairman, Stanley Fischer, said.

While China and some of the other developing economies are showing signs of life, Germany - and therefore Europe - seems to be on everyone's radar. If Europe can't stop from slipping into recession, the rest of the world may follow. As one pundit said over the weekend, the U.S. economy is the best house in a bad neighborhood. In other words, it may not do the the world's largest economy any good to keep up its machinery if the rest of the world lags.

We are also keen on watching oil, which has so fully decoupled from gold that it makes it hard to believe the two used to often trade in tandem. The price of oil is collapsing. (However, unlike gold, which operates on its own logic, oil producing countries may cut production whether formally, through state-run agencies and cartels, or through market forces such as those found in the U.S. Such actions would put a sturdier floor under the juice.)

Although the only exchange officially closed was the bond trading market, the Columbus Day holiday cast a subdued tone on trading today, especially in New York, which celebrates the holiday enthusiastically. No U.S. economic news is due out either, lending a further sense of quiet.

Much of what will drive gold in the near term fundamentally is equities. Should they begin to rally, gold will probably suffer. One item of note, however, is that the broadest index, the S&P, is down over 1% today.

As always, wishing you good trading,