Global Equities Sell-Off Spills Over to U.S. Markets

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Concerns that there is an economic slowdown put pressure on the equities markets overseas, which carried over into the U.S. markets today.

As reported by Bloomberg News, “Volatility continued to grip financial markets, with U.S. stocks heading to their lowest close since April and Treasuries rising alongside the yen, as mounting concern over the health of the global economy overshadowed positive trade developments and signs of strength from the American consumer.”

Although the Dow Jones Industrial Average closed off of the lows today, it still resulted in a decline of 2%. The Dow closed at 24,100.51 after factoring in today’s decline of 496.87 points. The NASDAQ composite experienced similar losses giving up 2.07% in volatile trading today with the tech-heavy index closing at 6,921.13.

The dollar index was one of the beneficiaries of today’s selloff with a flight to cash, the dollar gained 40 points (+0.42%) and closed at 97.46. Dollar strength also put dynamic pressure on the precious metal’s markets with the entire complex trading lower on the day.

As of 4:00 PM Eastern standard time, spot gold is currently trading at $1,238 per ounce. On closer inspection, we can see that today’s decline in gold prices was over 100% based on dollar strength. According to the KGX (Kitco Gold Index), market participants actually bid the precious yellow metal higher in trading today resulting in gains of $1.40. However, after factoring in dollar strength which took away $5.10 of value today, spot gold gave up $3.70.

Once again, we see that dollar strength or weakness has been the primary price influencer on precious metals. Dollar strength continues to put dynamic pressure on gold, silver, platinum, and palladium.

Palladium prices tested the record high price once again this week as it unsuccessfully attempted to trade at or above $1,200 per ounce, this the second attempt in the last two weeks. On palladium’s weekly chart, this double top over the last two weeks forms a candlestick pattern simply called tweezer tops. This pattern occurs when two consecutive candles have identical highs and signals real potential resistance at that price point. Palladium futures closed down $20 today and is currently fixed at $1,170.70.

Which brings us to next week when the Federal Reserve will hold its final FOMC meeting for the year. Although it is widely anticipated that the Fed will announce an interest rate hike, as well as verbiage indicating a much more dovish tone next year. With recent extreme volatility in US stocks, the Federal Reserve has a daunting task in that it is currently placing any decision between a rock and a hard place. If the Federal Reserve moves forward with its announced plan to raise rates, it could create a cascading effect which would facilitate a further selloff in US equity pricing. If the Fed announces a pause of interest rate hikes this month, it could be accused of bucking to pressure from recent statements by President Trump challenging its independence. Whatever decision the Fed moves forward with next week could easily have dramatic repercussions.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer