It's been another lackluster trading session for the broader equity markets, but the rise in gold and a rather sharp decline in the U.S. dollar has trader reading "geopolitical risk" scenarios into today's market action.
The U.S. Dollar Index (dx00y) 104.55 -0.75% dropping rather sharply and threatening the relative low of 104.27 from November 7th and has in play this summer's low of 103.54. This action combined with a rather sudden and sharp rise in gold stocks and gold futures certainly has the market looking at some type of geopolitical risk presenting itself in the not too distant future.
US Dollar Index Chart - Daily Interval
The rather sharp divergence we're seeing today in gold and the U.S. Dollar has the look of a MARKET scampering to hedge or avoid some type of risk in the U.S.. The first thought that comes to most investor's minds is geopolitical risk and not necessarily any type of "banking risk."
I jumped over to the U.S. Dollar Index point and figure chart on $0.50 box scale, and find the current bearish vertical count is $100.00. This is interesting and may correlate against the rather bullish vertical count performed on the gold futures contract from today's intra-date update at 01:00, which had a bullish count of $357.
A quick check of the S&P Banks Index (BIX.X) 282.52 -0.68% and the KBW Bank Index (BKX.X) 762.10 -0.2% gives some credence that the action between the Dollar and Gold is geopolitical.
The Associated Press reported that North Korea said will reactivate a nuclear power plant that U.S. officials suspect was being used to develop weapons, renewing fears of a nuclear crisis on the Korean Peninsula. As weapons inspections continue in Iraq, the Washington Post reported that the Bush administration had received a credible report that Islamic extremists affiliated with al-Qaida took possession of a chemical weapon in Iraq in October or November.
Energy markets also look to have traders bullish there. It's interesting that the March 2003 Natural Gas futures (ng03h) $4.775 +5.19% are surging for a third straight session after breaking to a contract high on Tuesday at $4.33. I'm not sure, but have made note here that natural gas is not an shipped in energy source from the Middle East, but very much a North American energy product. Price action here may be some type of "hoarding" or building of stockpiles. It has also been noted that cooler temperatures have been experienced on the eastern seabord of the U.S..
Given the higher levels of bullish % and some of today's action in gold and silver, broader market equity traders should be alert to weakness in the major indexes.
Treasuries finished their trading session relatively unchanged and much like the equity indexes, have hugged the upward trends that we put in place on the 10-year YIELD and the major equity indexes. This will continue to be monitored, but for downside action, traders look for breaks of upward trend as noted in the Index Traders Wrap. Today's action in the Dollar and Gold are suspicious and have trader's on the alert with trading plans in place.