Gold Plays Humpty Dumpty, Oil Slips, Dollar Stays Unchanged But Beefy

Gold took a beating overnight in Asia and in trading in New York later. It is off its U.S. lows, but it is still trading in the mid-1090s.

News that the government of China’s gold holdings were lower than anticipated upon that country’s first real reporting of the metal’s status since 2009, inspired some to believe that, in fact, China wasn’t driving the gold market nearly as much as first thought.

The news triggered other holders of the yellow precious metal – institutions and individuals alike – to shed some of their gold stockpiles. They reckoned that if the government wasn’t keeping its holdings on a huge scale, they shouldn’t either.

That may well be, but other news prompted the serious retreat. Greece made its IMF payment and Europe and much of the financial world elsewhere breathed a collective sigh of relief. That seemed to have removed any remnant of any safe-haven buying impulses leftover from the Greek imbroglio.

In general, other indicators are bad for gold bulls. Stock markets in the U.S., Europe and Asia are all doing well currently, especially since the Shanghai gang seems to have righted their ship for the moment. Europe should remain very strong, while the U.S. markets will be more cautious as there is a faint whiff of correction in the air, although we think that is generally overblown.

Crude oil, another barometer of how gold ought to be doing, fell below $50 per barrel in mid-afternoon trading. West Texas Intermediate has fallen 14% in July. Brent North Sea has fallen about 10% in the same timeframe.

How long the slump in oil prices will last is anyone’s guess at this point. The major stumbling block is the excess production flowing out of OPEC, especially Saudi Arabia. The second block is the enormous potential of U.S. fields, which would come back to life if the price per barrel were to hit the high $60s to low $70s range.

Finally, there is an improving output climate in both Iran and Iraq. Those two countries could add another 2 million barrels per day by mid 2016.

The dollar wasn’t a swaggering king today, but it is casting a long shadow.

We know the story line. We don’t yet know how it ends. At what point will the Fed raise rates? Whenever that might be, the hint, the whisper, the rumor of an interest rate hike is keeping the greenback big and beefy.

While the dollar is slightly down today, it still exerts enormous pressure on other currencies, gold, oil and other dollar denominated commodities.

Wishing you as always, good trading,