Gold Exercises Its Right To Trade Within Its Range On Dollar Strength And Weakness In Equities And Bond Yields

A decline in the U.S. dollar today gave gold the boost it was looking for, accounting for more than half of the session’s rise of over $9.00.

Equities are struggling for a variety of reasons. A sell off in German bonds helped trigger one in the U.S. bond market, although both paper issues have since recovered significantly.

Also in Europe there is renewed fear of a Greek default and that hurt shares on the continent. That slide bled over into the U.S. stock markets. Again, though, U.S. equities recovered late in the day and are trading close to unchanged or slightly down.

Also factoring into the U.S. equities struggles was the rise of the dollar itself, which is hamstringing American profits overseas and higher oil, which hits transportation issues particularly hard. The countervailing effect of higher oil, though, is a rise in energy stocks and a possible return of better employment numbers in the sector.

Let’s not overlook the situation in China. China has been viewed for a long time as the big engine in the world economy, although it still is small compared to the American and European economies. China is in hot, hot water, the proud home of two or three bubbles and an unmanageable debt across the board. Analysts are becoming worried.

Most worrisome is how a slowing China will affect North America and Europe, as well as the rest of Asia. We simply don’t know. The Chinese may have started one – or twenty-one – too many grandiose projects and, even in that land, bills eventually have to be paid.

The weaker dollar benefited crude prices today across the world as did an OPEC report that narrowly raised predictions of consumption from 1.17 million barrels per day to 1.18 barrels. However, fundamentals must have their say and there is an enormous amount of crude being pumped in West Africa, Mexico’s outlook is improving, and the United States shale oil industry is chomping at the bit, waiting for $65 per barrel pricing to get back to capacity pumping.

In the long run, unless oil consumption increases dramatically – by, say, 20% – prices can only go so high.

In another week or so, gold traders will again run into Fed jitters – will they or won’t they raise interest rates at the FOMC meeting scheduled for June 16 and 17? We are fairly certain we know the answer but that doesn’t mean that fear, panic, fire and brimstone won’t precede the moment when Chairwoman Yellen releases the preliminary statement on the 17th.

Till then, gold will stick to its range. Forecast? Partly sunny, followed by partly cloudy weather. Light and shadow, light and shadow.

Wishing you as always, good trading,