Gold Falls Again On Greenback Strength

Hard as it is to believe, today’s U.S. dollar strength is being driven by the sketching out of scenarios by some Federal Reserve members who discussed how rates could rise earlier than is now assumed. That rocketed the dollar up.

Needless to say that put downward pressure on gold even though it was up in regular trading. Gold is stuck in a range because fundamentally, demand by investors and traders is sluggish. There is some renewed physical demand in India, the world’s largest consumer of physical gold, but demand is way down in China, the premium standing at just a dollar over market price.

Never mind the future of Fed rate rises: driving the dollar right now is the current differential between U.S. rates and essentially the rest of the industrialized world. (The U.S. rate being higher than most other of such countries.)

The dollar was up against the euro by 1.25% and against the British pound about 1.1%. If that “spread” is having a profound and persistent effect on gold now, imagine what an actual Fed rate hike will do.

If we read the minutes of the FOMC meeting closely, they reiterate that the first quarter’s ultra slow growth was an anomaly and the springtime will bring renewed vigor. (As a case study, you might want to compare last year’s bad winter and economic growth and this year’s parallel figures. The first quarter of 2014 saw the economy shrink by almost 1%. This year, at least it grew.)

"What happened [Monday] after the U.S. non-farm payrolls on Friday was more of an exception, because people thinking the Fed would postpone the rate hike rushed to cover short positions," Julius Baer analyst Carsten Menke said.

"The longer-term trend for gold is still down because higher rates will happen eventually."

Although West Texas Intermediate crude is off its highs of the day, it is still up substantially, and that is helping equities. The attractiveness of equities limited regular trading in the precious meals today as investors stuck to looking for growth and yields.

A ringing non-endorsement of the Iran-Western powers nuclear framework by that nation’s big pooh-bahs also helped oil rise. A non-agreement would mean sanctions, including those on oil, would remain in place and perhaps get tighter.

However, oil, like gold, can fight only so hard against the muscular dollar.

Wishing you as always, good trading,