This is going to be an important week. Some say historic. In short, the following take place this week:
- Monday – ISM Manufacturing (9 AM CST)
- Tuesday – Mid-Term Elections
- Wednesday – Election results + reaction, FOMC and Fed Funds (QE2????)
- Thursday – Unemployment claims (8:30 CST)
- Friday – Non-farm Payrolls (8:30 CST)
As is always the rule, the reaction to the events will be more important than the events themselves. Look for some awesome volatility this week, setting us up for year-end performance-driven moves.
Dollar and Gold
I believe we have seen an intermediate low in Gold. 1,315 is the new floor, which should stick now with QE providing more fuel for dollar debasement and a flight to hard assets and commodities. We are seeing deflation in the things we want and inflation in the things we need. Some would say we are in a “stagflationary” environment, but whatever you call it, true growth in the economy does not exist.
Below are charts of gold and the dollar, with some idea as to where the dollar may go. The yearly cycle in the dollar may well put the bottom in later on still, as we digest QE. I have a target move on the dollar at 74-71, which would put gold at 1,500 – 1,600. Performance anxiety will drive mutual funds, hedge funds and others to chase this for sure.
If QE is not as robust as expected and gold fails at 1,315, look for a correction but not an all-out capitulation, as we will continue to see currency wars support the decline in currency to support exporting nations’ livelihoods.
Anyway, have a Happy Halloween, stay focused and trade the extremes. Keep in mind, too, that the first move in these markets is often the WRONG move.
Peace. Go Rangers!