At the midpoint of this holiday-shortened week, it appears the market is quite calm and, dare I say it, acting rationally. It is taking in the all the news and simply digesting. I suspect the market is also attributing much of the soft economic data to the bad weather in the northeast part of the US, which brings me to a question from a reader.
- Is the US sliding into a recession or is it JUST the weather?
Sometimes, it is hard to discern the true intent behind words when they are written, not spoken. For example, is the above sarcastic or serious, or is it tongue-in-cheek? Since I don’t know, I will answer it as if it were a serious question. No, the US is not sliding into recession and, yes, the weather is contributing to the recent spate of soft economic data.
I know there are lots of arguments out there pointing to a US economy that is structurally weak, that it is only doing as well as it is doing because the Fed is propping it up. If the Fed were not in the picture, the economy would collapse, or so it is said. Ignore them and move onto more fruitful endeavors, such as making money in the market. “Nuff” said.
Are you a gold bug? Do you believe that gold is the ultimate refuge in hard economic times? Do you believe that the price of gold tells us something about the current state of the global economy? If so … consider the following.
- Last quarter, demand for gold (all purposes) fell to 857.8 tonnes. That’s yet-another multi-year low. It’s 2.0% beneath Q3’s consumption, and it’s 28.7% below demand seen in the fourth quarter of 2012. And, the weak demand came despite the fact that Q4’s average price of gold was the lowest it’s been in several quarters, meaning even with drop-off in demand, the supply-demand equilibrium is still at lower prices from here… even if gold prices are up nearly 10% for the current quarter.
It must be some folks are still buying gold because of fear or speculation, but if the price of gold is at all dependent on the supply-demand equilibrium, then “caveat emptor.” Oh! One more thing to consider about the price of gold …
- The fourth quarter was the fourth straight quarter fund companies were net sellers of gold, telling us that the average investor is still dumping the stuff regardless of what the headlines imply. Although central banks/government banks are still technically net buyers, their pace of buying continues to dwindle. Last quarter’s 61 tonnes bought by government banks was the weakest buying we’ve seen from them since 2010.
Although the market seems normalized this week, things can change, and if they do, they will change quickly. I don’t see it just yet, but it could happen, so here is some advice to consider until we know for sure the big money is back on the side of the bulls.
- Particularly when the environment gets violent, such as it has since mid-January, it might be a good idea to play the game more conservatively. Trade less. Trade smaller.
Trade in the day; Invest in your life …
