Gold Gives Back Some Gains On Dollar Strength

It has been our contention that gold, rather than functioning recently as only a safe haven or store of value, has been operating as a growth investment. Granted, it may be in a limited scope but that is what’s happening.

Today, before recovering somewhat, profit takers stepped in on top of the effects of a stronger U.S. dollar, so gold and silver fell back from their lofty heights of earlier this week. Gold seems stable in late afternoon trading. Overheated silver is off 2.00%, a downward move that is a bit overdue.

Precious metals seem to have gotten caught in the dollar and energy whirlwind that has been taking crude, gasoline and natural gas lower. Both West Texas Intermediate and Brent North Sea are down more than 4.75% at 4PM in New York, a major move. The drop comes on weak U.S. stock draw data.

Commercial crude stockpiles fell by 2.2 million barrels to a total of 524.4 million in the week through July 1, said the Energy Information Administration. The EIA's figure came in just below the decline of 2.3 million barrels forecast by experts, but it was certainly far less than the 6.7 million-barrel draw reported by trade group the American Petroleum Institute late Wednesday.

Additionally, and perhaps more crucially, EIA also reported a gasoline draw that was about a third of market expectations, sending gasoline futures tumbling as well. Gasoline futures were down about 4.50%.

The dollar was up by 0.40% against the euro. It was down against the yen, which is on the verge of being too strong for the good of Japan but is acting as a real positive for the United States.

The big three bond markets were essentially unchanged across the globe.

U.S. equities were steady to slightly off. Tomorrow the Labor Department will release its June employment data, a calendar event that pushed many investors to the sideline.

Regardless of the strength or weakness of the jobs figures, we will begin to hear more about what the Fed might or might not do at the meeting scheduled for the 26^th and 27^th of this month. (You might also keep in mind that the following meeting scheduled in not till September 21.)

On the data front, according to ADP, private sector jobs rose by 172K in June versus a predicted 159K. Investors should feel warm about that, although ADP and the Department of Labor’s numbers don’t always comport even once adjusted to take into account the broader public-plus-private measure by Labor.

Germane to our current trade in gold, we would say that the better the jobs data the more it will weigh on instruments like gold, bonds and the yen.

We shall see what tomorrow morning brings.

Wishing you as always, good trading,