Gold Still Fears Rate Hike

A stronger dollar – what else is new? – helped push gold lower today. But it was regular trading that pressed down on prices driven by the fear that the Fed is about to boost interest rates.

On Friday, rate hawk Jeffrey Lacker of the Richmond Federal Reserve, a voting member this year on the FOMC, seemed to reverse course a bit (in a sense) on previous comments that forecast a rate hike in June.

Speaking at a Global Interdependence Center gathering in Sarasota, Lacker said "If we were to raise rates, and then subsequently reduce them to zero, it might be unexpected, but presumably we’re setting rates where we ought to be. I don’t see it as problematic to reduce rates having raised them once."

That is certainly an interesting comment from an FOMC member who is intent on a rate rise despite a soft patch in the U.S. economy. He is right in observing also that the rough winter the U.S. suffered will, of course, end at some point, but the strengthening dollar and low oil prices are keeping a tight lid on inflation.

A dollar further strengthened by a rate rise could bring the export sector of the economy to a screeching halt and bring down inflation further. It could also hurt the still-struggling housing sector.

Today, a moderate dove, San Francisco Fed President John Williams, said that as the U.S. job market improves, “the risk of an unexpected setback derailing the recovery once the Fed raises rates is receding.”

"As we go through time, that probability of saying 'well, the shocks are going to push us back,' seems to be less, seems to be decreasing," said Williams, who this year is also a voting member of the FOMC.

"More importantly, we are really thinking about a path. We are talking about moving interest rates from zero to a normal level over several years," he said. His views are seen as closely in line with those of Fed Chairwoman Janet Yellen.

In other financial and economic movement today, equities were lower for the most part ahead of earnings news due out for the first quarter of 2015. However, it seems as if there is more caution in the air rather than fear or panic. That leads us to believe that leaks are telling some investors that the earnings will either be in the normal range, or that traders will look past them to the current quarter. This moderate caution does not do gold any good.

Crude was up today on higher demand, slightly lower supplies and a reconsideration of how much Iran might affect gold prices should a deal be reached on that country’s nuclear program. Many had thought that Iran’s oil would have an almost immediate effect on supply, but new analysis is showing a two to four year window for full impact if Iran re-enters the world oil market as a full participant.

Regardless, crude had no “outside market” effect on gold, which is seeking information that could turn it back toward bullish mode.

Wishing you as always, good trading,