Gold Rockets To 2-Year High On Brexit And General Uncertainty

We may be seeing the British pound heading for parity. Perhaps it will be propped up. Perhaps it will finally rest where it belongs as Great Britain assumes its place as an economy in 10^th or 12^th place in the world ranking.

We do know that a lot of money is streaming out of European equities and into gold, silver and into U.S. bonds (to a lesser extent.)

The FTSE in London is down 1.25%, the German DAX is off 1.65% and the French CAC is down over 1.80%. U.S. equities are treading water, many traders not jumping into big market moves. Most are waiting for Friday’s employment report for the month of June.

The NASDAQ is up most by a little over a half a percentage point. The Dow and the S&P 500 are being held to minor gains by energy worries despite the fact that West Texas Intermediate crude and Brent North Sea were up strongly. Natural gas rose as well.

Energy’s biggest problem right now is not the Brexit, not a general slowdown, although both factors are in play. The devil in the details is a glut of gasoline. This week, for instance, ships with various kinds of petroleum products that are components in gasoline-making could not unload at New York harbor because there is no room to store any newly made gasoline. The cupboard is distinctly not bare when it comes to gasoline.

Ahead of the Labor Department report on jobs, however, there was some very positive news from the Institute of Supply Management earlier today. The ISM said its index of non-manufacturing activity rose to 56.5 in June from 52.9 the month before. The reading was solidly above expectations of 53.3 from a Reuters poll of top economists. The index showed the highest reading since November.

On the currency side, the pound is spiraling down, as we noted above. The pound was down another 0.85%, pushing the currency, once the pride of an empire, toward $1.29 per U.S. dollar.

The buck was down once more against the yen, which is a good thing. America’s goods and services need more cheapening if indeed it is to remain the main economic engine of the world. The decline of the greenback versus the euro helped precious metals prices modestly. (They’re doing fine without the dollar’s help.)

Although we knew pretty much what went on at the June Fed meeting, minutes released today confirmed that FOMC members were looking for more data before raising rates and were concerned (well ahead of the event) about the outcome of the Brexit vote.

The jitters over the effects of the Brexit have started pushing the VIX volatility index up again. Keep an eye on the nervous system.

Wishing you as always, good trading,