More Evidence of a Skittish Market, And Gold May Reap the Benefits

The same story we’ve seen all year continued this Thursday morning as the Federal Reserve is sending cautious signals and sending investors to worrying about the state of the dollar and the global economy as a whole.

What’s that story? For starters, gold’s price is up Thursday and once again is starting to flirt with the higher points of the $1200 range. In the meantime, the U.S. dollar weakened against the yen, and, as of yet, the U.S. stock market doesn’t seem to be handling any of the news very well, down over $100 in the early trading.

But what does this story mean for the market as a whole, and for gold in particular? Let’s zoom in on the latest news and find out.

First Things First: The Recent Fed Minutes

Frequent readers of this blog recognize that the market, perhaps more than any time in history, tends to hinge upon the confidence signals coming from the U.S. Federal Reserve. If the Federal Reserve shows signs of keeping interest rates low, for example, then investors worried about negative interest rates start looking to find other places to store their money than in banks—storehouses like precious metals, especially the efficiency of gold (which has a far higher price than silver per ounce, making it a better storehouse of wealth for those with a lot of money to save.)

But that’s a lot of words to throw at you, so remember this: these days, the market really hinges on what the Federal Reserve has to say. And what have they said recently?

In the most recent meetings minutes released, there were signs that the Fed is mixed on the economy, with one economist (Steve Stanley, as quoted by MarketWatch.com) saying that the views at the Fed are “as wide as I can remember.”

When a market pays this much attention to the minutes at a bank meeting, you begin to see the wide-reaching implications of every policy change at the Fed.

Gold Poised For Another Surge?

Gold is priced in dollars, so the dollar weakening against the yen is a sign that gold may hold on to its current gains. And since the Chinese are acquiring massive amounts of gold since the recession, as SchiffGold notes, it appears that the Chinese may know something Americans don’t: gold is a stabilizing force. Although many U.S. investors are turning to gold, it’s important to watch the behavior of the Chinese especially if the yen continues to strengthen against the dollar, giving the Chinese greater bank for their buck, or, in this case, greater bang for their yen.

What does this mean for the average, ordinary investor? It means, as always, be sure to watch what the Federal Reserve does, even if it’s simply releasing meetings minutes. The markets always seem to hush any time the Fed does anything, and if you want to get a handle for how the markets react, it’s important to keep watching and observing the prices.

Early Thursday, mixed Fed messages seemed to coincide with higher gold and a weaker dollar. Let’s see if those changes hold up.