Tug Of War

Imagine a game of tug of war but with four opposing forces, four ropes and an indecisive referee. That sums up what we experienced today.

On one rope, we have another stunning private jobs creation month in December. According to independent monitoring service ADP, 240,000 private sector jobs were added in the last month of 2014. This presages Friday’s Labor Department count, which includes all jobs, not just privately created ones. This news boosts the dollar and U.S. equities and puts pressure on gold.

On rope #2, we have the chaos surrounding the possible exit of Greece from the euro, which will throw Europe into turmoil economically. What the German masters of the European Central Bank haven’t figured out, and which has been good gospel for 80 years, is this: you can’t budget cut your way out of a steep recession or Depression. The Greek muddle is good for gold.

By the way, all freedom-loving people’s hearts go out to the murderers of people at a French satirical magazine. And make no mistake – they are nothing but murderers as sure as a killer mugger is. What this kind of criminal wants to mug, though, is free thought and free expression.

One rope #3 we have slightly less anemic oil prices, despite today’s dollar rise. Gold and crude are almost entirely disengaged from one another now. However, it should be noted that the rise in oil helped stock prices, which had been worried about the steep, fast fall in energy. Of course, higher stocks usually mean lower oil prices.

On rope #4, we have warnings and more warnings about how the rest of the world will drag down the U.S. economy sooner or later. That should be good for higher gold prices, but… it wasn’t. Vive la liberté.

The referee in question is the Fed, or more directly, the FOMC. On one hand, they said in the minutes of the December meeting released today that they are casually unhooking from the connection between higher rates and higher inflation. On the other hand, essentially the FOMC said that a rate hike will not happen till at least April. Somehow, the markets were not convinced there is a steady hand on the tiller, thus all the conflicting movements.

Silver has been fighting to remain even on the day. Gold is down around $8.50.

Wishing you as always, good trading,