Gold Beaten Back By Dollar Strength And Regular Trading As Holiday Weekend Commences

If anyone sees any inflation, please report it to us. Not the CPI, but the GDP inflation index and while taking into account the deflator index. Essentially, there is none, even when you factor in the big bump back toward “normal” provided by rising crude prices.

On to Fed chairwoman Janet Yellen’s remarks during an interview today at Harvard's Radcliffe Institute for Advanced Study.

"It's appropriate, and I've said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate,"

But it should be noted that Yellen has expressed caution on rates for the last five months, noting that inflation lags below the Fed's 2% target and as she said in Cambridge today, there are weaknesses in a fairly strong labor market.

She also notes continually that there are still global risks present. One notable survey point that did not enter the back and forth was the steep rise in consumer sentiment, which popped to 94.7 on the May reading, up from 89.0 from the previous period’s measurement.

The markets, as we head into the long holiday weekend, reacted as if the interest rate hike is a done deal for June. We’re not sure. Maybe we’re just too data dependent ourselves.

The U.S. dollar soared and it had its predictable ancillary effect on gold, driving it down on its own by 7.50. Regular trading pushed it down another $4.50.

Crude oil fell, as well, backing away from the psychologically critical level of $50 per barrel for West Texas Intermediate. There were concerns about still-abundant supply and looming production increases around the world. The mid-$50s are about where some higher-priced producers come back to the ballpark and play.

Even though the day in U.S. equities did not sparkle, it is significant that gains were held. That could be saying stock investors are skeptical of a rate rise in June, or that the investors are implying the Fed should “bring it on,” and things will be fine.

Either way, U.S. equities are going to close out their best week since March.

We’ve been directing you to the CME’s FedWatch Tool recently. It has been bouncing around quite a bit the last few days. The probability for rates to stay at .50 is at 70%, to rise to .75, at 30%. That’s up slightly from yesterday but down from immediately after Yellen’s interview.

Of even greater interest is the further fall of the VIX volatility index to 13.30. It has been descending slowly for the last week or so, telling us that movement is slowing, and that perhaps we are entering the typical sideways summer markets.

On Monday in the United States we will remember our fallen servicemen and women and markets will be closed.

Wishing you as always, good trading,