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A Tiny Dose Of Risk Friendliness Douses Fire Under Gold For Now

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We experienced a classic, if small-scale, risk-on day in U.S. and European markets today. Crude oil also rebounded robustly today as well, abetting the lukewarm strength in stocks.

Asia did not share in the equities and oil optimism, falling across the three major indexes. Hong Kong was just barely down while the Nikkei and Shanghai had their bell rung loud and clear. China’s economy is still suffering from the highly negative export/import data released this week.

It is also suffering from credibility problems as more international investors are doing a gut check on the world’s second largest powerhouse. Now that there is wavering in the growth pattern, transparency is drawing closer scrutiny. No one less a personage than Ben Bernanke called for enhanced openness in China. We shall see.

Strong, strong demand for gasoline in the U.S. fueled today’s rise in prices of energy. (No pun intended.) The inventory draw on gasoline was triple what the experts had predicted: 4.5 million barrels versus the forecast 1.4 million.

The obverse of that coin is that crude stockpiles rose 3.9 million barrels, an unexpectedly high figure. We are also slipping into the crease in the year when gasoline is reformulated for and refineries close briefly to refit and retool. Additionally, gas is cheap as cheap can be, even with the recent uptick. We are also in the midst of the heavy spring driving season instigated by schools’ spring breaks. Upcoming soon, too, are various religious holidays and holy days. Thus, the draw down will continue.

Even though hope springs eternal that OPEC will pull it together with its partners outside the cartel to limit production, the move is still over the horizon. Production remains unchanged, so there is a more general downward pressure on price.

Gold touched 1242.10 this morning, obviously affecting our trade. The details can be found in today’s video and in Market Forecast and Proper Action.

But, as we said, it was a risk-on day. The moves in stocks were fairly meager, but nevertheless, a fresh appetite for risk entered the markets.

The U.S. dollar rose against the yen and Swiss franc today, demonstrating the lack of enthusiasm for currency haven plays.

Yields on 10-year bonds across the globe rose enough to signal that demand was a little slack for the paper. The yield of the U.S. 10 was up most of all the major bonds.

Lest we forget, we are headed toward a Fed meeting on the 15th, a mere three business days away.

Depending on whether you are a cup half full or half empty, you might be leaning hawkish on an interest rate hike or dovish. We think it would be prudent for the Fed to stand pat, and if they must raise rates, wait until the following meeting.

Truth be told, we would like to see more inflation and a 4.5% unemployment rate before the Fed starts the slashing and burning again.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer