FB: Gold, Crude Oil, Stocks Move In Same Direction
(Kitco News) - Gold, crude oil and equity markets are all moving in the same general direction, which is an unusual situation.
Normally these markets are not linked together since gold and crude oil are generally considered safe-haven assets and equity markets are considered a risky asset.
On Wednesday, all three markets were weaker, with gold leading the downside. For this year, though, gold and equities have risen in lock-step, while crude oil has shown stout gains for February. Comments by Federal Reserve Chairman Ben Bernanke in front of Congress put a damper on ideas for a third round of quantitative easing when he said recently improving jobs reports will mean policy-makers must watch future data considering the now “somewhat different signals.”
All three have risen to be in reach of critical resistance levels before Wednesday’s correction. April Comex gold futures have come close to $1,800 an ounce, March CME S&P 500 stock index futures were just under 1400 and Nymex April crude oil was near $110 a barrel. Profit taking near the resistance areas, particularly for gold, was also cited for the session’s break. April gold settled at $1,711.30, April crude oil settled at $107.07 and March S&Ps were trading around 1363 in late day action.
These resistance areas could be placeholders for now, market watchers said.
EQUITIES TO HAVE TROUBLE SUSTAINING GAINS
Sterling Smith, commodity trading adviser at Country Hedging, said the S&P 500 rallying days are numbered. “So far the way the S&Ps have traded, they cannot sustain the pace of the current rally. Higher gasoline prices might take the steam out. We saw durable goods (Tuesday) were horrible and the Case-Shiller data had nothing good on housing. I think the best part of the gains S&P will see this year have already happened,” he said.
Durable goods orders, which are orders for products that will last more than three years, fell 4% on Tuesday and the S&P/Case-Shiller index of property values in 20 cities declined in December to the lowest level since the housing crisis started.
Gold, he pointed out, has not had a significant correction since starting on its rally from the December lows. Additionally, for a market that is “hungry” for another quantitative easing, the Bernanke comments and the strong Chicago PMI employment figures would not feed the bulls.
Yet Smith doesn’t think that gold is acting as a risk asset and following S&Ps. Rather gold is trading as a proxy for currency weakness and Wednesday’s action doesn’t change that view.
The gold market could be in store for more weakness as it closed on its lows Wednesday. Support is put at $1,700. Smith said the market could “easily” take another $100 off the current price as when the momentum for gold losses builds, it can last a few days.
