What Else Were You Expecting?

While we live in the Age of Anxiety, the Age of Irony, and the Age of Social Media, we also live right now in the Age of Volatility. The markets proved it again today.

The Dow and the S&P 500 bounced up in a lively manner, the former adding 1.6%, the latter, 1.25%. NASDAQ fared only marginally less well. All European exchanges were up and in Asia, only the Nikkei was down.

All this action sucked the life out of gold, though curiously silver advanced (on better industrial demand and a sort of general price reevaluation and readjustment).

There are a few reasons for gold’s lifelessness. The price of crude again leaped robustly, WTI up close to 6% and Brent up a little over 5%. Second, the rest of the EU seems to be coming to grips with the 247^th Greek crisis of the 21^st century.

Crude is finding great interest among investors and traders, although we believe it is probing its limits at this very moment. We would not be surprised if it fell back down to the mid-$40 range in relatively short order, although some analysts are predicting it will go to $60 before sliding back to around $50. At one point today, the West Texas Intermediate contract was up 7%! Why now? Some of the buying is technical, naturally. As we pointed out last week, oil had probed its lows for a few weeks at the low 40s. Failing to break down through that level gave impetus to a move up. Now things are flipped around and we’re going to watch oil bump resistance on the upper end. We shall see what happens.

The Europeans are close to finding a solution to the Greek ordeal, at least temporarily. (Read Europeans to mean Germans.) They seem intent on buying the bad debt of the government of Greece via the QE recently instituted, and even issuing special “perpetual bonds” for the Greek government that will be interest-only instruments until… well perpetual never means forever unless you’re Great Britain, which is still paying on the debt created by the Napoleonic Wars in the early 1800s – and even that is to be retired in the next 10 years.

The approach to the Greek mini-crisis has smoothed volatility and drawn money back into European equities. The rise in crude has also helped immeasurably.

In the U.S. markets, even though equipment purchases have slid for five months, markets are also taking into account the rise in oil. Somewhere between 18% and 33% of all new equipment is made for oil exploration, drilling, refining and transport. Higher crude means more equipment purchasing. The remainder of equipment purchasing has stayed steady to up. Thus the heavy-duty exchanges relish the rise in oil.

But, beware. Oil could tumble again soon. Watch as it bumps its head. Can it break the next ceiling? If not, gold will benefit.

Wishing you as always, good trading,