NFTRH Update: Econ Data & Implications

This morning, the ADP employment data was unsurprisingly strong at 238,000.  Later today we have Fed minutes and on Friday the Employment report. The sum of these should be that a ‘taper’ regime remains on tap.  This would be bullish for gold IF long term yields rise relative to short term yields as could be implied by a long term bond buying ‘tapering’ regime.  Otherwise, it will likely be bearish.  Here is what yields have done this morning on the news… tyx.fvx The 30 is rising less than the 5 and thus the ratio in the top panel is dropping.  That is not gold bullish per today’s little micro event. What will the Fed minutes hold?  What will ‘jobs’ on Friday hold?  The likely result is probably more taper noise.  While I think the elements of a bond purchase taper could ultimately be gold bullish, it remains critical for long yields to begin to out perform short yields. Meanwhile, a beneficiary could be the US dollar.  The reason I shorted the Euro had as much to do with the potentially positive dollar as negative Euro.  I also remind you that by virtue of substantial cash positions (which were increased per the notes in NFTRH 271), I am very long the USD as well. usd For many weeks we had been following a negative weekly signal on the USD as the Euro headed toward the 140 target area.  USD remains on a bear signal by weekly charts (moving averages crossed down) but change starts with shorter term charts, so we should watch the daily above.  MACD has gone green and the pattern has a bullish flavor. This makes sense in light of tapering potential.  At some point I expect that the precious metals can go in roughly positive correlation with Uncle Buck, if/when USD strength and reduced bond purchases begin to result in economic deceleration.  In the meantime however, markets are still subject to the perceptions of the herd. Be careful of the story that economic strength will stoke inflation, which will in turn launch gold. Bottom Line Another indicator of economic strength came in this morning and yields spreads knee jerked to gold unfavorable.  I would say fine, never let knee jerk reactions influence decisions, but the greater theme remains one where the economy is strengthening and this is a trend, not a knee jerk. This brings us back to the idea of inflection points as opposed to readily definable trends.  Right now, until proven otherwise the trend is toward strong economic signals and pressure on the Fed to taper out of the bond manipulation game.  Be careful in fighting the trend while it is firmly in force. Back on the precious metals, this is why we have noted the 50 day moving averages as being so important.  A rise and hold above the 50’s signifies a changing of trend.  The PM’s are not quite there yet and thus risk remains in play pending those being put in the rear view mirror.