True Believers Reenter The Market

The equities markets began bellowing rather than just giving a throaty roar. The stock bull ran right around the world on the news of China’s lowering of interest rates. Shanghai was up most, followed by European exchanges.

 

On the same news, and more promises of European stimulus – or something like stimulus – the U.S. dollar shot up. Oil was up.

 

Even though gold lost some of its punch through the dollar’s strength, there were enough true believers who bid It up, although the yellow precious metal is down from its earlier highs.

 

The only investments that seemed shaky today were bonds. The 10-year U.S. was close to the 2.30% mark on yield. Japan’s 10-year was also down, but Germany’s rose ever, ever so slightly.

 

There was also (still) an element of bargain hunting in the market. As gold trades in the current range that is likely to happen, just as there will be opportunistic short players. The bargainistas make themselves felt most strongly in the physical market, a movement that then ripples through exchange trading. To some extent the physical market is also being driven by holiday gift giving. One of physical gold’s biggest problems is that it is overwhelmingly out of style in the western world, from Europe to North and South America. Look around at affluent western young people (outside of the world of entertainment). How much gold do you see them wearing? So, Asia is the main driver and to a lesser extent the Middle East. If Asia purchases slow, the metal suffers.

 

The fact that the U.S. is finally experiencing some inflationary pressures also made gold a bit of a safe haven today, and this week in general.

 

Next week, we will be on tenterhooks regarding more general market trends. Will we see gold stuck in its holding pattern, or will there be a break out?

 

"While the current macro environment of low inflation and a strong dollar has provided a head wind for bullion, a convincing break above the $1,200 level may invite buying from momentum investors," said HSBC analyst James Steel.

 

Wishing you as always, good trading