Profit-Taking, Oil and Immigration
Pessimism seems to have infected all markets today. No wonder... it's becoming clear to investors that the fiscal mess in Washington is actually messy and not just an annoying detour.
Gold - down. Silver - down. Platinum and palladium - down. Base metals down.
All stock indices worldwide are down.
Crude oil is slowly collapsing (down to 96.85 at one point today).
All 10-year bond yields are down - in the U.S., Germany, Japan.
Gold is somewhat explicable. After big run-ups last week and yesterday, profit-takers have stepped in, which is understandable since the dollar weakened a bit, though now it's firmed, and, honestly, there was money on the table.
Further pressuring gold - indeed the whole commodities complex - was crude oil, which was flirting with $96 but is now off its lows. Consumption is down and inventories are up in the U.S., the world's largest consumer. Competing energy sources for purposes other than automobile fuel are also pressuring oil.
"Crude oil is having a large impact on the commodities sector, dragging everything down," said Paul Sacks, principal gold trader at Aurum Options Strategies in New York.
Commerzbank's technical analysts, who study past price patterns to determine the next likely direction of trade, conjectured that gold's rally on Tuesday had neutralized their bearish view on the metal, although it remains vulnerable to further losses. Gold can run from the bear but it seems it's having a hard time hiding.
The absence of fresh news also hurt gold's prospects today. But it is unreasonable to believe that only big bangs can set off an uptick in precious prices. There is enough other fundamental news that should be driving gold, but investors and traders remain down on the yellow metal.
The premium on an ounce of gold in India reached $120. The artificial suppression of imports of the metal into that gold-happy country has created the situation. How about a smuggler who, besides a regular profit, can take 1000 ounces of gold into India and earn $120K on the premium alone. Nice work if you can find it.
The Washington tempest over the shutdown and debt ceiling is quiet now. So is a grizzly bear during hibernation. Although the embarrassing glitches over the health care website have slowed the Democrats' overall strategy, it won't continue to do so for long.
Look for the second front the Dems open to be in the form of immigration reform. This is a cleaver aimed at the split between Tea Party caucus members and the business side of the party, which favors the acceptance of immigrants because immigrants want low-paid jobs and business needs cheap labor. Do we need cheap foreign labor when the unemployment rate is so high?
The Tea Party is right for all the wrong reasons. Being against people simply because they're different is one of the chief drivers of our current impasse in Washington. The President doesn't fit the profile of the extreme right wing's idea of a chief executive.
Wishing you as always good trading,