Gold Appreciates The Lower Dollar

The U.S. dollar traded lower today, giving gold almost all of its upward movement.

The buck went down because there is (and was) mixed data coming out of the American economy. Some indicators are up while some are down. The combination is bewildering to FOREX traders who have to keep a constant eye on national and international developments that might affect a Fed decision to raise or not raise rates this year.

Today’s cocktail of mixed data went this way: A better-than-expected report on the U.S. services sector for April was quickly offset by a wider-than-predicted trade deficit. The dollar rallied early in the day on the service sector info, but tumbled after the trade deficit report was released.

For a long time we have said that September seemed like the likeliest time the FOMC would vote to raise the basic interest rate of the country. We may now even be tacking slightly toward December, but for now, don’t hold us to that. Too many issues can arise in the interim.

The first-quarter slowdown and the current second-quarter sluggishness are driving forces.

"I think people are realizing that the first quarter is a bigger hole to climb out of and into the second quarter and therefore there is the view that the Federal Reserve could delay raising interest rates," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Part of the problem is the dollar. That problem is being exacerbated by spotty performance in Europe, China and Japan. The U.S. can’t be expected to be the only engine of economic growth in the world. The system is no longer designed that way. It’s simply too integrated.

Crude oil rose again today and looks as if it will settle up over $6. (West Texas Intermediate crude, that is.)

Slightly higher oil prices could actually be good for the U.S. economy. More jobs, demand for more equipment and more circulation of money would stem from more production. More U.S. production would also help curtail the importing of foreign oil, which is raising the trade deficit.

We expect gold to stay in its holding pattern, as puzzled as other markets over the direction of the U.S. economy and therefore the timing of a Fed rate hike.

Chicago Fed President Charles Evans didn’t exactly help to clear things up yesterday. He reiterated that increases could begin this year, although with inflation ridiculously low and the unemployment rate still too high, the U.S. central bank should hold off on raising rates until early next year.

So now we have one of the more important Fed presidents talking about next year. Let’s stay focused on September and remember to put December on our radar.

Wishing you as always, good trading,