Stock Volatility, Crude Prices Rule Gold

Although in late afternoon gold is off its highs for the day, the yellow precious metal is up nearly 1%. Today, there was no headwind from the dollar; in fact, a lower dollar helped gold gain and keep traction.

Equities were down double digits today, which in itself is not all that remarkable when viewed through the prism of gold. What is helping gold is powerful volatility in the stock markets. Over the course of the week, the Dow, for instance, has finished with either a triple-digit gain, or triple-digit loss. This would make haven bets more attractive.

The equities have been swayed of late by deeply declining crude oil prices. Today we saw yet another serious dip in oil, the prices of both WTI crude and Brent both swooning. The latter is close to crashing down through the $50 per barrel mark. Until we find some stability in crude oil markets, look for volatility in stocks. So, free-falling oil affects the price of equities, which then ends up effecting gold.

The situation in France is very serious, indeed. Some are arguing that gold partially gained because of the murderers and the threat of more mindless bloodshed. While our hearts go out to our friends in France and the families of the murdered journalists, cartoonists and hostages, we don’t believe it is affecting markets to any significant degree.

The U.S. jobs report for December is a mixed bag. There were 250,000 jobs created but wages still are depressed – across a broad spectrum of industry and services. However, in this specific report we don’t think there is a lot of red meat for the markets. As unemployment lowers, low-pay-scale, entry-level jobs are finally being filled. This naturally will put downward pressure on wages. As we move toward the 5% mark and under, we’ll see this happen for a while until the point is reached where employers can’t find new workers and have to lure labor from other firms. (Assuming the U.S. economy stays as strong as it is now.) Keep in mind that construction is not going at full tilt at this juncture but very well may give a burst of speed come the spring. Then the wage picture will change dramatically.

A little further digestion of the FOMC minutes released Wednesday put more queasiness into equities. Gold benefits from the uncertainty over the question of interest rate levels. We still think that a rise is a good distance in the future.

We also believe gold will stay steady to higher in the next few days as people look for fresh direction from the entire investment complex. 

Wishing you as always, good trading,