Gold could be in for a huge selloff

October 31, 2014

Okay, something weird happened last night. US data printed stronger than expected but stocks and bonds hardly budged. The release of Q3 GDP printing at 3.5% against 3% expected while down from more than 4% last quarter could have been expected to knock the markets juts a day after the FOMC ended QE.

The lack of reaction is grounded in the big government contribution to growth it seems which was so unexpectedly strong but coming a day after the end of QE it raises the question of whether this time might be different to the end of QE’s 1 and 2 when the economy wasn’t strong enough to keep stock prices up on their own.

I’ve been leery of this and it is too early to tell but its a potential reality that must be considered going forward

So at the close the Dow was 1.3% higher, up 221 points to 17,195. The Nasdaq was up 0.37% to 4,566 while the S&P 500 rose 13 points to close at 1,995 for a gain of 0.64%. The high was 1,999 but the fact that the S&P 500 is so close to 2000 so soon after the mini-crash is a testament to current US stock market resilience.

In Europe the big news was that German inflation missed with October CPI falling 0.3% against expectations of a 0.1% fall. this took the year-on-year rate to just 0.8% in Germany and pushed yields on 10 year bonds down to 0.81%. No doubt deflation speaks of weak aggregate demand in Germany and no doubt this increases the chances of the ECB President Draghi finally acting on his rhetoric with QE Europe style.

So stocks rallied from an early morning swoon, rescued by the US most likely. The FTSE rose 0.16%, the DAX rose 0.35% and the CAC was 0.74% higher.

Locally overnight futures traders have taken the December SPI 200 contract up 16 points to 5,473.

Up, down, up – ignition time?

On currency markets the Aussie rebounded and is at 0.8830 this morning on the back of a little risk on meme. It might actually have the legs to take out the high of the week during November as you can see in the chart below.

US dollar weakness allowed the Euro, which should have been crushed overnight on the back of the German data, to recover from a low of 1.2546 to be back at 1.2606 this morning. Sterling is back below 1.60 at 1.5998 and USDJPY at 109.20.

On commodity markets the big news is gold getting poll axed and it is back below $1,200 and ounce at $1,198 this morning. It looks terrible if the low of $1,180/87 gives way and a further $200 dip is on the cards if the range bottom breaks.

Nymex crude fell 1.52% to $80.95 a barrel, copper is at $3.08, a pound, iron ore for December rose 29 cents to $79.04 a tonne. Newcastle coal fell 25 cents to $64.60 a tonne.

On the data front we get the release of RBA credit (read debt) data this morning along with PPI. Japanese data is super important for the region and markets and then German retail sales tonight is huge. Likewise the EU-wide CPI tonight is important. In the US personal income and spending might actually get more traction than the GDP and the Chicago PMI is always worth a look.

 

This is my last post for VantageFX and I would like to thank all the readers and traders of this  morning report and wish you all the best for the future.

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