Dollar Comes To Aid Gold But Traders Must Be Doubters And Try To Drive Metal Down

The dollar retreated against the euro today, giving gold an almost $2.00 head start. Investors and traders, however, tripped up the yellow precious metal, so instead gold is up only 20 cents in late afternoon trading.

The U.S. dollar was somewhat oversold against the euro. It continued its rise against the yen, though. It is now at a 12-1/2 year peak against the Japanese currency. The euro found some strength on two intriguing notions, both related. The first is that some sort of deal will be reached with Greece. The second is that the June 5^th “deadline” for a deal is nothing more than a phantom date that can be extended ad absurdum.

The latter is more provocative as the Greeks seem to sense the rest of Europe’s waffling and are exploiting it fully. Indeed, for all the Europeans, the union is emotional, and no one wants to see it fracture. It is widely feared that one defection – or one eviction – from the currency set-up will create a domino effect and return the union to its early, core members. The likely second and third dominoes are Spain and Portugal.

The dollar also strengthened against the British pound.

Crude oil also rose today, West Texas Intermediate and Brent North Sea each overcoming the weaker dollar. Both oils were also up on lower stockpiles, although curiously, U.S. supply is up fairly significantly. That production, of course, will go back into replenishing reserves.

In the U.S., weekly unemployment applications rose to a five-week high. They were up about 7,000 from the previous week. This doesn’t seem to be fazing analysts and commentators that much. The numbers did take a bit of starch out the equities’ collars, though.

“On balance, this week’s uptick in initial and continuing claims comes off of historically low levels and labor market separations remain healthy,” Barclays economist Jesse Hurwitz said in a note to clients.

Also hurting equities was a dramatic, 6.5% drop on the Shanghai index, a long overdue correction. (A mini-correction until we see how things develop.) That drop set a certain tone for the day in equities. American exchanges were off marginally, each less than 0.25%.

Returning to employment in the U.S., Tom Keene at Bloomberg presented a telling chart from the financial media giant. While unemployment claims rose a bit, when measured against today’s population, they are at historic lows since the post-recession period of the 1970s. As Keene states, this is incredibly good news for the American economy.

It is also bad news for gold and silver, as it is “Inside game” numbers like this that will drive the Fed decision on raising rates. Also bad news was an increase of 3.4% in pending new home sales. Data like these could make the rate-rise a lock.

Even if it doesn’t, apparently the U.S. economy has less and less wood to chop as it struggles out of the Great Recession.

For those that enjoy our Hawaii 6.0 Articles and would like a deeper analysis focusing on the technical aspects of the market, I invite you to try our daily video newsletter. Simply use the link at the bottom of this report to sign up for a free trial.

Wishing you as always, good trading,