Gold Still Building Up Its Head Of Steam As Stocks Move Higher

Only a few days after it became clear that an interest-rate hike by the United States Federal Reserve in June is very unlikely it isn’t terribly surprising that gold is looking for a wide hole in the line to run through.

Even with a solid, if modest, assist from a softer U.S. dollar, gold in mid-afternoon is up only 40 cents. Silver is off a quarter of a percent.

The shying away from the rate rise helped equities the world over rise solidly today with Shanghai and the London FTSE experiencing smaller rises in choppy trading. The FTSE no doubt has an eye on the Brexit vote, which is now only 16 days off. Shanghai is off and unsteady in its direction due to concern over China’s debt problems.

It is no accident that the S&P 500 and West Texas Intermediate crude are trading simultaneously at their highest since last July. The S&P is up almost 0.40%. The Dow is up in the same range but the NASDAQ is only treading water due to weakness in the biotech arena, led by a 12% loss in Biogen, which disappointed on earnings.

There was light interest in the 10-year U.S. bond, the yield of which was down marginally. The dollar softened against the yen as well as the euro but most of that was the deflating factor on the heels of the perceived Fed stance on rates.

In any event, today is a risk-on trading day, as you can figure from the few lead paragraphs above.

"I think what we're seeing globally right now is the dovish sentiment following Janet Yellen's comments yesterday," said Ryan Larson, head of equity trading, U.S., at RBC Global Asset Management in the U.S.

But, are we going to experience the gavel of the law of unintended consequences?

"The Fed has been facing a no-win situation for the past couple of years, but especially in the past six to 12 months," wrote Matthew Barasch, strategist with RBC Dominion Securities. "On the one hand, the underlying economic data in the U.S. has been supportive of raising rates off of what would be categorized by most as emergency levels; on the other hand, global growth remains broken."

What’s a mother to do?

Let’s take a quick look at the two graphs below. The first encompasses the FOMC meeting next week. The probability of a rate hike as of today, as measured by the CME action, is less than 2.00%.

It starts jumping again when we look at the lower graph, which is showing the probability for a hike come the late July meeting.

Wishing you as always, good trading,