Gold Constrained by Continuing Reversal of Post Brexit Sentiment

We almost can hear the old-time strains of FDR’s campaign song, “Happy Days Are Here Again,” as investors and traders continue to shrug off the Brexit vote. Whether this is wise can only be known as the future unfolds.

Certainly traders in the FTSE issues think things are hunky-dory. They pushed the index up by 2.25% today. The DAX and CAC were also strong, though nowhere near the firepower displayed in the FTSE surge.

U.S. stocks are also behaving in a devil-may-care fashion today. The Dow, S&P 500 and NASDAQ are all up around 1.35% each. The Dow is up triple digits.  

"The market is breathing a big sigh of relief that Brexit didn't trigger the end of the world," said Adam Sarhan, CEO of Sarhan Capital. On the other hand, there is a legitimate fear that the fragmentation of the EU will come back to bite the world, but especially Great Britain. You can rest assured that those who work in the City of London are on tenterhooks.

Perhaps most impressive is that U.S. stocks are up in the face of a fairly sharp tumble in the price of West Texas Intermediate crude. The market fell 3.00%. It has since recovered some strength.

The U.S. dollar is up against the euro, yen and British pound. The rising dollar is helping to keep a lid on gold prices that are rising through normal trading action. Gold is up a quarter of a percent, but silver is moving strongly higher, a leap of 2.33%. We're thinking there is some player taking advantage of pre-holiday small volumes.

Although not a major currency, the Chinese yuan needs watching. It is at its lowest point in six months. This could hurt U.S. manufacturing at worst and hurt further the balance of trade at the least.

Although US manufacturing remains right at the flat line in growth with still challenging global trade conditions, the dollar is helping make American goods more attractive, especially within its North American partnership. The U.S. manufacturing base and the Chinese base are two very different animals, however. The former creates high-end, high-tech, essential machines for export (think Boeing and advanced navigational electronics, for instance), while China supplies less-sophisticated, less-finished goods (think Walmart bargain aisles and steel).

Customers usually need the higher-end goods, while the less-finished goods require either discretionary income or a good deal of infrastructure spending. He developed world seems to have come to a big pause on the latter.

On the data front, weekly jobless claims came in at 268K, slightly above the experts’ prediction of a rise of 267K. The Chicago Purchase Managers Index reading for June came in at 56.8, well above a May reading of 49.3 – good news indeed.

We think that we will continue to see a crazy-quilt growth pattern at least for the rest of this year and most likely well into 2017. There will be plenty of opportunity to make money, but opportunities, whether they be in gold, equities or crude, will cycle themselves through, each one getting a turn at bat while the others (mostly) sit on the bench.

Wishing you as always, good trading,