Volatility and Uncertainty Keeps Roiling Markets and Gold Prices Under Pressure

We’re concerned about volatility in almost every market you can name. Call it whatever you would like, but we are calling it a crisis of faith in the overall world economy. It may be a bit misguided, but the uncertainty is a fact of life.

The VIX on the CBOE rose 4.00% to 16.23 today (at 2:30 PM Chicago time). And now volatility ripples wherever it wants, disrespectful of international borders.

It is a measure of how interlaced all the economies of the world are when you examine Apple stock’s fall into the low to mid-90s based solely on poor iPhone sales in China. (Albeit Japan, Taiwan, Hong Kong and the rest of Southeast Asia are also unraveling Apples sales projections, but China is the 800-pound gorilla in the room.)

There are so many contradictory reports when it comes to the economies of Europe, the U.S. and East Asia, volatility simply must be the watchword. It is having a wild effect on the U.S. dollar, too.

At the moment, the dollar has stabilized from its recent decline after the government said the U.S. trade gap shrank to its smallest in 13 months in March, a shrinkage greater than most analysts forecast. At the same time, factory orders grew 1.1%.

Additionally, the Institute for Supply Management's gauge on the U.S. services industry rose to its highest since December.

These figures overshadowed news from payroll processor ADP that companies added 156,000 workers in April, the smallest monthly gain in two years. On Friday the Labor Department will release total non-farms payroll data, which may be well under 200,000 for April. However, it is still growth and a breathing spell in employment growth is not unheard of.

Naturally, a stronger-trending dollar has taken some of the wind out of gold’s sails, but regular trading is doing damage to gold (and silver) prices today, as well.

Once again, one would think today’s risk-off sentiment is tailor-made for gold to go higher, but it is down at 3:45 PM in New York by about $6.00.

U.S. 10-year bond yields are marginally lower, indicating some haven appetite. It is the only area that is showing even minor interest in safety plays.

The yen and the Swiss franc, the two major haven currencies, are off against the dollar.

We believe this rather topsy-turvy “no-haven” situation is one of the major indicators of volatility.

Finally, in the volatility parade, we have crude oil. Indeed, West Texas Intermediate is up on the day, rising now about one half of one percent as after-hours trading sees prices steadying. But Brent North Sea is off about half a percent itself.

Both crudes are well off their highs, which tried to punch through short-term resistance and failed. $45 per barrel is an important psychological level in WTI for now.

Our thought of the day is as follows. U.S. and European equities fundamentals look very good, though not excellent. They are weaker than they have been but not so weak as to engender real concern. Are they strong enough to drag Asia back into solid growth? We simply do not know, but we lean toward saying “no.”

So, you can think, “cup half full” or “cup half empty.” Either way, there is something in the cup and cups do get drained off and refilled all the time.

Wishing you as always, good trading,