Gold Rebounds While Labor Report Looms

The biggest news of the day emanated from London where the Bank of England lowered its overnight rate to 0.25%, lowest ever. The central bank also announced other various stimulus measures that hover around the £170 billion.

Some analysts here are saying that this might preclude a rate rise by the Federal Reserve here in the United States as it would spread the strengths of the dollar and pound too much. (The dollar would grow stronger if the Fed raises rates.)

However, the counter argument is that a more robust British economy would help the United States keep its economy moving along and that would create more jobs, more demand and therefore more inflation.

The biggest question is how soon the measures will find traction in the UK and how quickly that will affect other economies like those in the U.S. and Europe.

The main reason for the actions taken today were to shore up confidence as Britain’s post Brexit economy takes form.

The pound was off against the dollar by 1.50% on the day while the euro was off only marginally.

That margin was enough, however, to help offset regular trading gains in gold. Gold is up $3.00 in late afternoon. The stronger dollar pushed down the yellow precious metal more than $3.40. Regular trading added $6.40 and so we arrive at a $3.00 gain.

In fact, the whole precious metal complex was down, with palladium dinged the most, off over one full percent.

U.S. equities, awaiting tomorrow’s jobs report, are mixed – slightly off for the Dow and S&P 500, slightly up for the NASDAQ.

The FTSE in London loved the move and jumped 1.60%. The DAX and CAC were up though not as much as London, roughly 0.60%.

The weaker yen inspired traders of the Nikkei to goose it a bit over 1.00% on the session there. (The yen strengthened later in New York.) We think there is also a kind of rise by association. Tokyo feels it is keeping good company with the UK in efforts to stimulate its national economy. A little solidarity goes a long way.

Oil experienced a slew of short coverings right around the $40 per barrel mark, which is one of those magic numbers not tied to anything in particular except emotionalism (at this point). Prices also bounced off morning lows and came back up over the 200-day moving average.

There was some minor drawing down of inventories in the U.S., although the specific number was more a general barometer than a cause to buy right now while planning on a longer-term bull in crude.

Wishing you as always, good trading,