Gold Moves Higher While Dollar Finishes Steady

Early in the trading day the U.S. dollar rose against the euro on speculation that during the current European Central Bank meeting, the bank’s head, Mario Draghi, will push back hard against a cadre that wants to start “tapering” asset purchases. However, as the afternoon wore on, the dollar moved back to even with the euro and then went slightly lower. That helped gold a bit on a day that saw spot move higher by $6.70, most of which came from regular trading.

It should be noted that the green back has risen by about 3.00% since the end of September. That has been driven by slavish devotion to the idea that the Fed must raise rates soon.

The dollar trend has proved to be a slight headwind for gold and silver, but the precious metals seem to be coming out of their doldrums in spite of currency fluctuations. Gold is up not about half a percent today, silver up around 0.35%.

If you are a speculator who comes down on the side of a high probability of a Fed rate rise this year, gold is a good play as a haven, for we shall certainly see a correction in equities if the interest rate goes up.

There was momentum in stocks from some good earning news as we reported and discussed over the last two days. A solid rise in West Texas Intermediate crude of 2.00% also propelled markets higher. That is especially good for energy stocks. The rise was based on a larger stockpile drawdown than was forecast. However, this seems to us no solid reason to think stockpiles will dwindle for very long. After all, we are in the season when new supplies of crude are needed for brewing up the famous winter blend of gasoline.

The Federal Reserve Beige Book was published today and showed the U.S. economy gave some signs of rising wage pressures in September and early October but generally compensation growth remained subdued. This further clouds the outlook for the FOMC’s December meeting.

"Wage growth held fairly steady at modest levels, although some districts reported rising pressure for certain sectors," the Fed. Some of those districts are New York, Boston, Philly, St. Louis and San Francisco. Higher labor demand leads to higher wages, which one hopes leads to more consumer spending.

However, the Beige Book also reported that most districts reported a modest or moderate pace of economic expansion. Consumer spending was mixed, just as consumer outlook was when reported on last week.

Overall, the Fed said the report was “mostly positive,” although there are lingering weaknesses.

The question is, as always: when does strong become “too strong” and trigger a rate rise.

Wishing you as always, good trading,