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Tanking Of Oil And Equities Pushes Gold Back Up

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Gold rose today by 1.00% (as of 3PM in New York). It was up about $12. Silver was also up but by a smaller percentage, 0.4%.

Oil and equities drove haven plays. Traders were also doing some short covering – emergency surgery to repair Monday’s larger-than-expected drop.

Yesterday we discussed a number of crosswinds affecting crude oil, which in turn has been so disproportionately – and pointlessly – affecting equities.

We pointedly wrote about the switch from the March to April contract that happened today. And, sure enough, West Texas Intermediate is down in afternoon trading by 4.80%. Brent North Sea is down 4.20%.

This also bears repeating from yesterday’s fundamentals letter, concerning the International Energy Agency: The IEA report also said bluntly: “Today's oil market conditions do not suggest that prices can recover sharply in the immediate future.”

On top of that, today Saudi Arabia said it would not join in a production freeze or cut that many thought was a done deal. Other OPEC countries and non-cartel producers must be deeply disappointed.

The softness in crude throughout yesterday afternoon’s trading and into the overnight sessions dragged down equities from Asia to Europe and then to New York. But it wasn’t all oil’s fault.

The Asian and European banking sectors are walking around on spindly, weak legs. Everything is sluggish in banking and finance, what with interest rates either near or below zero. Lenders aren’t lending, including the government of China.

Takata (of bum airbag infamy), helped pull down the Nikkei index as it retraced its lows. In Europe, mining was hammered and fashion house Hugo Boss, which was down almost 20%, damaged the DAX for the day.

Oil, naturally, brought the Dow, the S&P500 and the NASDAQ down, but stocks extended losses after the Conference Board said its consumer confidence index fell dramatically to 92.2 in February, down from the already downwardly revised 97.8 in January. Predictions were looking for February’s number to stabilize.

"I think obviously the price of oil is giving back part of its gains but I think the fall in consumer confidence is dampening investors' enthusiasm," said Peter Cardillo, chief market economist at First Standard Financial.

Our contact at Deutsche Bank said that crude was providing the outline of the coloring book drawings while other daily events were filling them in. “And that coloration is tending toward the negative.”

He seems right on the overall grayish cast, because positive news seems not to be able to counteract the negative. Even very good news isn’t punching through.

For instance: U.S. home re-sales unexpectedly rose in January, reaching a six-month high. That’s the latest sign that the economy remains on firmer ground despite slowing global growth and tightening financial market conditions, Reuters reported today.

The National Association of Realtors said existing home sales increased 0.4% to an annual rate of 5.47 million units, the highest level since July. January’s sales pace was also the second highest since 2007.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer