U Is For...

Safe-haven buying erupted today in the gold-buying market as the already tense situation in Ukraine boiled over and the country appeared to be on the brink of civil war.

The flash point has become Odessa. Odessa is important because it is Ukraine's port on the Black Sea and is at the heart of an ethnically mixed region composed of Ukrainians, Russians, Tartars and Georgians.

The Ukrainians are fighting for their country. The Russians are involved with a quest for false nationalism that leaders hope will mask its failed economic model. The Tartars will side against the Russians because they have a long history of distrust and fear regarding the Eurasian giant. The Georgians, because of Soviet-style Russian revanchism, hate the Russians more than one can even begin to describe.

There has already been a large number of deaths in Odessa over the last few days. While we're not in the business of predicting social or individual actions and reactions, the prospects for peace do not look promising.

In more normal proceedings, Chia's manufacturing sector was down for the fourth consecutive month and early in the day that sent equities reeling. A few key weak spots in the U.S. - big pharma - did not help stocks.  

However, an impressively robust services sector report in the U.S. turned that ship around and stocks recovered from triple digit losses to quiet gains.

Gold hung on to a large share of its increase so that shortly before 5 o'clock in New York it is up nearly $10 an ounce.  

The China news is especially helpful to gold's outlook on a longer-term basis. China is the second largest manufacturing country in the world and, although there are many downsides to the manufacturing renaissance in North America and Europe (displacement of workers among because of revolutionary automation among them), one major upside is that it is damping the overweening Chinese economy, which, truth be told, is looking to displace America as the world's dominant economic power.

That can only happen built on the back of China's manufacturing sector. But... and a big but... China can only see impressive continued growth if they open their own consumer markets to their own products. Much of the rest of the world is already saturated with cheap finished goods from China. Those country's that aren't flooded with Chinese goods are hostile to Chinese economic hegemony. (Think southeast Asia, especially Vietnam, the Philippines, Malaysia and Indonesia; India, and parts of Africa and South America.)

Whether the Chinese central planners are ready to break out of its nearly century-old revulsion at large scale consumerism will be an interesting current in economics. Naturally, the Chinese will want to carefully examine the super-thrifty Japanese people's slow economic suicide because of a failure to loosen up internal markets. You can't expect the whole world to keep buying from you when you aren't buying from them. That was also England's downfall in the 19th and 20th century until very lately.

Bad China news depresses stocks and helps money flow to other instruments. Mostly because of Ukraine, but because of China, as well, today, that money found its way into gold investment.

As always, wishing you good trading,