Gold continues to bounce around the $1300 mark, looking like it has aspirations of going higher

DAILY MARKET REPORT

Gold continued to bounce around the $1300 mark this morning as a run of government reports reflected mostly benign economic circumstances. At the moment, it is up $2.50 on the day at $1305 and looking like it has aspirations of going higher. If it does, it would not be without proper cause as there is more than the average number of economic threats rattling around the markets. The dollar, too, has suddenly veered south over the past two days.

Commodities continue to move quietly higher, though it has not been a good day for oil thus far – down over 1.5% on the day. By way of an update, the closely watched CRB is up 15% over the past year. Gold, by contrast, is up only 3% over the past year leaving much room for improvement. Gold tends to track commodities over extended periods. The divergence at the end of the plot lines in the chart below is telling. . . . .

Chart courtesy of tradingeconomics.com

Quote of the Day

” . . . I suspect a staggering amount of ‘carry trade’ leverage has accumulated globally over this protracted speculative cycle. ECB policies have clearly spurred leveraged speculation throughout euro zone bond markets, especially the unsound periphery. Eastern Europe as well? There is surely massive leverage in U.S. Credit, most likely having played a prevailing role in the booming investment-grade corporate marketplace. We’re in the stage of the cycle where things look good. In the U.S., in particular, the New Era and New Paradigm mentality has taken deep root. The economy appears robust, bolstered by fantastic technological advancement and scientific development. The underlying instability of finance goes unrecognized; the global nature of Bubble Dynamics unappreciated. Meanwhile, markets again this week provided confirmation of the Unfolding Instability Thesis.” – Doug Noland, Credit Bubble Bulletin

Chart of the Day

Chart courtesy of Advisor Perspectives

Chart note: There are a couple of things unsettling about this chart. First is the sheer amount of investor margin debt present in the current stock market – over $650 billion. Second is the correlation between the growth of that debt and ascent of the S&P 500. With that amount of leverage in the stock market and the influence it has on price levels, if and when the margin calls arrive, the tumble could be fast and extreme. FINRA (Financial Industry Regulatory Authority) warns that “many investors may underestimate the risks of trading on margin and misunderstand the operation of, and reason for, margin calls.” Shades of 1929.

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