The chatter about the market still carries a negative tone, but it is not as pronounced as it was in March and early April. The recent pullback and sideways trading have silenced many of the moderate and sensible voices, but there are those from atop the hill who still insist that the market is headed for a major sell-off.
Aside from the technicians and historical-pattern buffs, some of those who opine about a collapse use Europe (euro and the Eurozone) and US hyperinflation from the Fed’s policies (QE) as reasons for the pending market apocalypse. This song, perhaps a siren song designed to lure traders into shorting the market or buying bonds or, perhaps, a tune for acolytes of a particular perma-bear belief, has been sung now for some four years and counting.
Well, the Eurozone is still intact and the latest bugaboo of Italy not forming a government has passed, as Italy formed a government this weekend. Bond buyers seem to like it.
- Yields were lower on the ten-year benchmark bond after the Italian Treasury auctioned EUR3B of the notes at 3.94%.
As to US hyperinflation … Although inflation does exist in the good ol’ USA (check out gas and food prices), the hyper part does not seem to be an issue, at least with the Fed.
- With inflation now lower than the Fed wants, officials are likely to conclude their policies show no sign of overheating the economy.
Regarding inflation on the global front, it seems the tepid pace of growth (or lack of it in Europe) out there is holding down costs that contribute to inflation, hyper or otherwise.
- Crude-oil prices are down 10% from a year earlier, gold is down 11%, and the Dow Jones-UBS broad index of commodity prices is down 5%. Overall prices of goods imported to the U.S. are down 2.7% from a year earlier.
Interestingly, gold is mentioned in the commodity group above, and since it is seen as a hedge against inflation, it is no wonder it is down. At least that is one likely reason gold is down (there are surely others). The question of the hour, however, is will it stay down?
- HSBC slashed its 2013 price forecast for gold to $1,542 an ounce, from $1,700, a target that’s still higher than current levels. Spot gold traded at $1,469 on Monday, and has risen around 9 percent since suffering its biggest one-day fall in 30 years on April 15.
Currently, gold is rallying from its lows and the gold bug arguments are many, but will it attain the glory it held when it danced around $2,000? Surely, it will not achieve the astronomical $5000 level many predicted back when the Eurozone was collapsing on a daily basis and hyperinflation stood ready to pounce with each new Fed purchase, but will it climb back in the current environment of low inflation and developing European stability?
- HSBC said there are three factors that will give the yellow metal support, including a slowdown in exchange-traded fund (ETF) liquidation, robust retail demand from India and China and buying by emerging market central banks.
HSBC might have a case in the near term, but in the longer term (all things being equal), gold stands little chance of attaining its former attraction as the place to be in a market moving up.
Trade in the day; Invest in your life …
