Tis The Season Again

After some initial physical demand in Asian markets, gold quickly backtracked as it was hit by a dose of reality in New York. Also, China lowered its benchmark interest rate, giving the dollar some extra cause for strength. (Although the greenback didn’t move all that much until late today due to other strictly American factors, it helped pull prices down by about 0.20% while the rest of today’s loss is attributable to regular trading.)

The Institute for Supply Management (ISM) said its index of manufacturing faltered somewhat in February, coming in under projected assessments, but it also showed continued expansion of the sector. Investment in new home building and consumer spending were also weaker.

On Friday, non-farm payrolls will be reported for February. We have the feeling they will be strong but not as strong as they ought to be due to a variety of influences. We think the Fed will stay its current course of thinking about an increase in June – that is talking it up – but not delivering one until at least September. Obviously, a move, or non-move, will influence gold prices and other markets.

We have to take a moment, though, to survey the U.S. economic landscape, given today’s numbers.

Winter months almost always show declines in activity. First, there is the post-holiday consumer funk. Second, this year, (like last), saw much of the U.S. gripped by an unusually harsh winter. Last year, in fact, we saw a contraction in the economy in the first quarter, which we will not be seeing this year. Third, there has been the slowdown in West Coast ports, which affects everything from electronics to high-tech, automobiles to food. Fourth, the drop in the number of oilrigs and the nearly complete cessation of the opening of new rigs has really damaged manufacturing. (Energy-related equipment accounts for about 20% of all domestic manufacturing activity. And those shutdowns also depress purchases by laid-off workers, particularly tools, trucks and other durable goods.)

If the U.S. economy recovers robustly, as it did last year after the first couple of months of down ticking, it will push the Fed toward making their decision more quickly.

Crude oil is down today with Brent North Sea taking it on the chin to the tune of a loss of 4.75%. West Texas Intermediate is faring much better, off about a third of a percent.

Those outside bearish factors hurt gold. Renewed strength in U.S. and especially Asian equities also hurt gold.

We’re looking for fundamental information that tells us gold will return to bullishness. War? Some sort of catastrophic turn of events in another economy? We simply don’t know right now.

Wishing you as always, good trading,