Gold, Oil, Treasuries and the Fed (ETFs: GLD, IAU)

Includes: GLD, IAU
by: Roger Nusbaum

The gold market (ETFs are GLD and IAU) is certainly worried about something, probably inflation, writes Roger Nusbaum. But it could be a panic over what might be an very uncertain year end for the US economy. Either way the 5% move in such a short time is a headwind for equities. Another possibility is that we are just seeing a seasonal spike as some of the Asian holidays are on the way.

The Fed meeting and statement are both potentially very important and market moving. There seems to be genuine indecision in the market about what the Fed will do at the next two meetings. The current meeting, I believe, is set that the Fed will hike again which seems odd because there is been a willingness, in the past, to change paths in the face of crisis or dislocation as is happening now with Katrina.

I'm not sure the spike in oil on Monday will necessarily stick. I continue to be overweight the sector but this latest move seems to be borne more out of very short term news. A couple of weeks ago I thought the Katrina spike to $71 would not last and my gut says oil trades a little lower for a while. An average of $60 per barrel over a quarter would still mean fantastic earnings for the sector.

The move in Treasuries to 4.24% on the ten year is also consistent with unwinding Katrina and I think that 4.20%-4.50% is a positive relative to an inverted curve. Where it become a negative is rates moving up with gold to signal inflation. I think rates need to be higher than where they are now to confirm the move in gold is just about inflation.
Some other commentators were looking for a calm week. Monday's action refutes that. We saw extreme moves in many different markets. I could easily be wrong about oil and underestimating the importance of the move in gold. The point here being that after a period of relatively low volatility we could see more coming for the next few months as some of these new variables work themselves out.


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