When A Gain Feels Like A Loss

Sometimes in sports, one team barely beats out another. It’s a victory, sure. But maybe the winning side loses a star player, or certain plays on the field just don’t go right, making for an awkward win. It’s called “winning ugly.”

Today gold found itself in such a position. Robust regular trading drove it up over $14. But then came the U.S. dollar ogre with its club to beat the up-trade practically senseless, ripping $11.75 off the price. The result is that gold is up a little under $3.00 in afternoon trading.

Sometimes, as we all know, trading is psychological. You can easily lose heart when you see days like this. Unfortunately, our take is that the dollar is on a relatively long ride up against the euro and British pound – and against the yen but not as strongly.

If it’s any consolation, American equities were hammered while those in Europe generally rose. West Texas crude and Brent North Sea also were taken to the woodshed, both losing well over 4% on the day. WTI is hovering around $45.

What will change the course of the mighty dollar river? We’re betting it's the next FOMC meeting in April.

Yesterday we discussed the two-month decline in retail sales. The two months, before any adjustment to the February data, now showed a total shrinkage of 1.7% in retail. Now that may be seasonal and it may be weather related (temporal), but if it continues, it doesn’t predict an interest rate any time soon in the U.S. Keep in mind, as we also said yesterday, that retail sales account for 70% of all economic activity in the world’s largest economy.

Earlier this week we also spoke about inflation. If it became any tamer it would turn into a bowl of Jell-O that’s been left in the sun too long. Weak inflation in the U.S. really is remarkable. Indeed, inflation is weak everywhere in the world except for Russia, a few other “BRIC” nations and some of the third world. Otherwise, it’s barely blipping on the radar.

Fundamentally we have to ask, concerning gold’s current upside, “What is the need for gold in a portfolio?”

The U.S. dollar is acting as a magical haven play. Prices of everything seem to be going down, not up, unless you count commodities based on growing and harvesting seasons or on climatic conditions. Crude is testing its lows from earlier in the year, which will further dampen inflation. The stock markets in New York may be losing steam but in Europe they are just beginning to gain major traction. (Asia is still pondering the fate of its equities.) U.S. bond yields are stuck in a medium-low range, but still seem attractive.

If gold is to get its bullish mojo back, there has to be a reason. What will it be?

Wishing you as always, good trading,