Key News

• Australian Business Confidence Plunges (Financial Times)
• Stimulus May Fail to Revive U.S. Growth Without Recovery in Banking System  (Bloomberg)
• China's Inflation Slows to 1%, Weakest Pace in Two Years, as Economy Cools (Bloomberg)

Quotable

"Stimulus--that is, fiscal intervention with the express purpose of speeding up the normal regenerative process that Grant describes--is unnecessary and almost certainly harmful, a policy based on hubris and anxiety, rather than on history and good sense.”

                               James Glassman

FX Trading - Physical vs. Paper: And the Winner Is ...
Are gold coin sales a positive indicator for the US dollar?

The answer to that question would fall on whether or not an ongoing period of deleveraging and risk-aversion remains a positive driver for the buck. If so, then what's shaping up in the market for physical gold will be US dollar-positive.

Quickly, investors are buying armfuls of gold coins and bullion. The driver for these purchases is said to be increased concern over the health of the global economy and world financial systems.

This is nothing new to us. We've been hearing from colleagues and various other sources how we seriously need to be buying gold coins. It seems their foremost point in discussing gold coin sales was to reveal the disconnect between prices for physical gold as it relates to "paper" gold (gold traded that doesn't exchanged hands/prompt delivery) while supported though much of the last couple months, paper gold prices remain distinctly below physical gold prices.

This demand by investors seeking safety and stability highlights the global investing environment ... but does it prove that the price of gold as we view it (electronically) must rise?

It was noted in the Financial Times article this morning that sparked our morning comments:

"Traders and analysts said jewellery demand, historically the backbone of gold consumption, had collapsed under the weight of the high prices. Sharp falls in demand in the key markets of India, Turkey and the Middle East have capped the potential of any price rally."

If that's the case, then speculators may also be taking cues from China.

Besides showing very dramatic turnarounds in export and industrial production growth as 2008 came to an end, we got various other news items and clues that China will continue to slow along with the rest of the world. Though perhaps their downturn will be deeper than most market watchers think.

The inflation story - as evident by plunging consumer prices (30-month low) and producer prices -- paints a fairly subdued picture for the once red-hot dragon. Will this impact the Chinese jewelry demand? And will speculators view China's demand patterns as a proxy for global demand patterns? If so, there's the potential the "paper" gold market doesn't play catch-up to physical gold; there's the potential that investors view gold from a perspective of a liquidity driven asset (rather than a safe-haven asset.)

Stay tuned to see how the cards fall.

Looking at EURUSD in an hourly time frame, from the start of yesterday up to right now, this pair has looked a lot like something you'd see at Six Flags Theme Park - straight up, straight back down, and straight up again ... like a roller coaster.

So this morning I pulled up the Average True Range (ATR) on the EURUSD and looked at it from a daily perspective. As ATR doesn't really provide indications on prices beyond volatility, I don't find myself using it much.

In this case, looking at EURUSD daily, the ATR was relatively low for the last several days. But pulling out to a weekly chart told the story. Even though recent prices ranges have been small compared to those from one or two months ago, the ATR over the last couple months is definitely something to note.

Jack said to me a couple weeks ago as we glared over our screens showing tremendously volatile and unforgiving FX price action:

"You're cutting your teeth in historic times."

This is part of what he meant.