Gold Copycats China with its Reactions to Europe

As noted before here at RealMoneyReport.com (sponsored by Leland National Gold Exchange), gold prices seem to directly correlate with the mood generated by European news. Looks like it's got a thing for China too...

The earlier part of this week saw the undeniable slowdown of China’s economy, which was then immediately followed by some fairly heavy selling in the commodities’ space Sunday night and Monday morning. Before we knew it, some of the largest cuts in bullish positions by speculators since the summer of 2008 occurred. Various hedge funds reduced their commodities positions by 1.1% as commodity prices fell by 1.5%.

What started Monday morning's downward price action was the data released on China’s trade gap, which reached its highest in two decades last Saturday. For those of you who don't know what a trade gap is, it is basically the difference between a country's imports and its exports. Ideally, a country would like to have its exports exceed its imports, but the trade gap is usually measured as a positive number representing how much imports exceeded exports by. China's had hit $34 billion. This negative news, in combination with data concerning the country's factory output and consumer retail activity, proved once again that China is indeed going through some difficulties.

And of course the world market can sometimes be likened to a violent coliseum whereby the first signs of weakness put the first gladiators down. The dollar reacted quite favorably to this exposed wound and as a result, the entire commodities market took a hit. So yes folks, we now have full blown gladiatorial UFC ring with China, Europe, gold and other commodities on one side, and the U.S. by her lonesome on the other. But make no mistake. This is still going to be one hell of a fight.

On the bright side, platinum actually won a small gain of $2 Monday morning after hitting $1,684 per ounce, although palladium fell about $5 to $703. Now a $2 rise from $1,682 may seem insignificant - heck, it is - but taking into account the fact that it occurred during a worldwide drop in commodities lends some credence to signs of resilience. It is no wonder that some analysts are saying that it might not hurt for investors looking to get more safety in diversification with their hard asset portfolios to start grabbing some platinum...

Today, the Fed gave out some pretty positive news announcing that it will keep its interest rate target between 0 and 0.25% and reiterated the need to keep rates exceptionally low through "at least 2014." Usually, this kind of news sent gold prices up, but as of this writing on Tuesday evening, gold sits just a buck above the $1,676 support line. Interestingly, I've often seen a 'communication lag' if you will, whereby good or bad news one day isn't reacted upon until the very next day (or two to three days if there's a weekend involved). Tomorrow could bring out some interesting reactions in the markets and I will be taking a close look then as well.

Be safe, be wealthy and above all else, be happy.

- Mitch

RealMoneyReport.com

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