When No Reason Finds Real Reasons

The bulls took command today, as the moment of truth about the direction of gold came to hand after a long, slow holiday in the U.S. Part of the bullish momentum was provided by a faltering equities market, although those recovered somewhat in the late-afternoon.

NASDAQ was the biggest loser, but strangely, given the rise in gold, the DOW is only down a third of a percent and the S&P down only by 0.75%.

Additionally, the dollar is softer, but only by a very slim margin against the euro. Throwing us into further confounding waters, the 10-year bond yield, which had been down to 2.15%, has recovered modestly.

The simplest way to describe the action in gold is to say there was strong short covering, but that isn’t quite enough. We feel the market had been oversold earlier in November only modestly, but by the month’s end – especially because of the conflicting messages thrown off by the Swiss gold referendum, which failed – the price of the yellow metal became truly depressed, and, although it seems funny to say, traders became depressed, too.

Finally, low levels were reached that triggered automatic contract buying. And it worked.

There were a couple of other pieces of news affecting gold today, some of serious longer-term import.

Moody’s cut Japan’s bond rating and that sent money scurrying into safe havens. This occurred while we are all still uncertain of Europe’s economic growth status, headed by the core three, Germany, France and Italy. As they go, so goes the euro-zone. The news today in Europe said those three economies contracted last month.

On top of that, two key manufacturing growth gauges in China were very weak, although expansion did continue. Those readings were disappointing to markets.

Black Friday sales were off 11% from last year, which also had an effect on stocks and haven demand. However, that effect will be short lived. Black Friday has slowly been turning into Black November, a whole month of sales, promotions and nattering from your favorite media source. In other words, the specific day – Friday – is no longer as important in consumers’ approach to finding bargains.

Finally, Citibank issued an assessment today that said they expect the average price of gold in 2015 to be $1220. We touched that average today and are trading only $7 to $8 off it. 

Wishing you as always, good trading,