Gold Battles To Gains On The Day In Spite Of Dollar Strength

The headline says it all. At 3:45PM we are waiting to see if regular trading can maintain a modest little up-move – around $1.30 an ounce – in the face of a very healthy greenback. Dollar strength is dragging gold down over $7.00 at this juncture. Silver, however, can’t compensate enough to push into the green zone.

Raise your hand if you are eagerly awaiting tomorrow’s FOMC statement and glad to get it off of our backs? Thank you. We are also wishfully wanting the Brexit vote to be over, but we have another nine days before that insanity plays out on June 23rd.

The oddest and most annoying aspect of both events is that in reality their outcomes would not really have much of an effect on the broader economy of the world.

A rise to 0.75 on the Fed’s overnight rate would not stall the U.S. economy. There are many other factors aiding in that process. And an actual Brexit may generate a fair amount of negative pull on the British economy but we are beginning to think that it may benefit especially France and Germany, as well, quite a bit. So there will be some reciprocity of good versus bad in Europe.

The yield on the U.S. 10-year bond fell to 1.57 in pre-U.S. trading. It is now back up to 1.62 but there is enough interest in the instrument to keep it low till tomorrow morning at least.

Europe set the tone for today’s equities trading as all three major bourses remained jittery to the downside. That helped to keep a tight lid on action in New York. The DAX is off 1.40%, FTSE down around 2.00% and the French CAC off most at -2.30%.

It is noteworthy that the German 10-year bund is at a 0.00% yield for the first time. Zero yields mean that bondholders actually pay the central bank for the honor.

Of course low yields hurt banks and other financial institutions very hard, as they earn nothing on their holdings of government paper.

Another leading culprit in sliding stock prices around the world is the price of oil, which is trading in the $45.50 range, a far cry off last week when it was flirting with a real rally that allegedly could have taken it toward $60 per barrel.

There is no concrete fundamental reason oil should go much higher right now. Perhaps in the fall when everyone in that market is hoping and praying that Chinese demand will pick up. Even then, supply can keep up easily if demand rises another 20% to 25%. Might want to ponder that if you’re thinking of going long oil.

West Texas Intermediate is off just about 0.60% at 3:45PM in New York. Brent North Sea, buffeted by the Brexit issue, is down even more – 1.00%.

The VIX volatility index just keeps barreling upward, reacting primarily to the Brexit concerns. Because they don’t know what it all means, investors, especially foreign investors – and even more especially Middle Eastern oil magnates and sovereign fund managers – are looking for protection.

Many are “betting” on more volatility. We don’t think the Fed non-move is involved with this strategy. In fact, the VIX may decline a bit after tomorrow’s FOMC meeting closes.

Wishing you as always, good trading,