Here’s the news of the week – and how we see it here at McAlvany Wealth Management:
Hinging on the inevitable…
Market volatility increased this week in response to a panoply of crosscurrents. That said, the market action followed a rather indiscernible path, one not worth reiterating. If one thing can be said, it’s that the dollar was firmer during the week for a number of reasons, reasons not so easily ascribed to conditions here in the US. Germany’s consumer confidence fell as the number of unemployed in that country rose unexpectedly. Unrest in Syria, and the subsequent inaction on the part of U.K. officials to intervene militarily, triggered a small flight to quality and a weaker pound. Some would add that an unexpected rise in second quarter US GDP data also aided the greenback, but the weaker data in US durable goods orders, pending home sales, and personal income were sufficient in keeping the dollar’s rise in check. In any case, the dollar’s strength produced a fair bit of what could reasonably be categorized as a “profit taking” for the precious metals. Stocks were in and out of unchanged all week, though the news in Syria, higher rates, and stubbornly persistent notions of Fed “tapering” in September manufactured mild losses for the major indexes by the close Friday. Treasuries caught a bid for the second week in a row, while crude flirted with 110/barrel but fell back once the Syrian conflict was determined to be undesirable but less threatening than the alternatives.
Considering the fact that the better than expected US GDP data was about the only decent piece of news emanating from US markets this week, it was a bit frustrating to see the metals give up the higher ground amid higher amounts of uncertainty. Low volume holiday trade could be the culprit, allowing for the metals, and perhaps even the dollar, to be “pushed” in directions more favorable to those parties possessing the vested “interest” to do so. Volumes in equity trade, for example, have plunged to a 16-year low. With that in mind, recent trends stand a better chance of resuming with post-holiday trade.
Next week non-farm payrolls (US job-creation) are due to be released Friday. Traders are hanging their “tapering” hats on the data. If jobs numbers are found wanting, stocks could rebound from recent interim lows along with the metals as the Fed would be seen continuing its QE program. Though, given the obstinate manner in which traders have clung to the “tapering” subject matter, it may not be put to rest until the Fed officially capitulates and declares it otherwise – perhaps as soon as the Fed’s Sept 18th meeting. But if the Fed remains mute on the subject, markets and traders must eventually contend with the notion that a world with QE, even when taken with all its diminishing qualities, is far better than a world gone completely or partially without. In the meantime, we may be in for some listless trade, especially in the early-going next week – all things remaining equal of course, i.e., absent US and/or French intervention in Syria or something of the like. That said, it still would not be a surprise to see the precious metals inch higher amid solid world demand, despite all other news, towards benchmark levels previously discussed.
Until next week,
VP Investment Management