The strength of the U.S. economy is worrying the precious markets right now, with durable goods orders up 4.6% in December, often a sticky month for long-lived manufactured items needed for future deliveries. Luckily, enough fear of good times has been built into the gold market to keep today's decline modest but threatening.
Couple the improvement in durable goods with positive labor news, optimistic consumer sentiment and an upturn in housing prices and planned starts, (although the usual December downturn in home sales), and you have the complete formula for fundamental short-term pressure on gold.
However, a closer look at the durable goods picture tells us there is still considerable weakness in the consumer economy, aggravated by the stubbornly high unemployment rate.
"The durable goods data were boosted by a 56.4 percent surge in bookings for military aircraft, according to the Commerce Department's report.
"Excluding demand for transportation equipment, which is often volatile, orders increased 1.3 percent, also beating the median projection, which called for a 0.8 percent advance.
"Orders for non-defense capital goods excluding aircraft, a proxy for future business investment in items like computers, engines and communications gear, increased 0.2 percent following gains of 3 percent in November and October. The advance over the past three months was the biggest since mid-2011."
Yet there are fundamental currents swirling that are positive for gold. Sovereign funds keep adding to their hoards; mining activity has slowed; housing inventory is reaching critical low levels, and there is the ongoing QE3.
Housing inventory is particularly germane to gold and silver prices because new housing will become inflated in price if demand stays high and not enough homes are produced. That inflation will ripple through the entire production pipeline of housing construction. The cost of all materials, fixtures and labor should rise. Inflation, as you already know is good for gold.
Speaking of housing, here's one item of interest: while full-fledged adults tossed and turned through the Great Recession nightmare, an entire generation has come, or is about to come, of age. They are the Millennials, the oldest of whom are in their early 30s. Starting around age 25, on average, people get married, start families, look for a first home to buy, buy a better car, etc., etc. The generation under discussion is more hard-pressed than most, but they are numerically the largest demographic cadre ever. (80 million) That can only be good for growth, and inflation, and therefore for gold.
As always, wishing you good trading,