Gold Struggles Because Of Higher Dollar But Does Move Higher

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Gold Struggles Because Of Higher Dollar But Does Move Higher

There was a fairly important data release today that affected markets, although it will probably take another day before it is completely absorbed.

Personal spending in the U.S. for July rose 0.3%, in line with forecasts, while the personal consumption expenditures (PCE) price index rose 0.1%. The PCE is up 1.6% over the last twelve months. The discrepancy between the two numbers today is intriguing, although some analysts are giving more weight to the 0.3% and brushing off the infinitesimal inflation rise. If data continues showing 0.1% inflation rises per month, we won’t see 2% inflation until most of us have gone to our final rewards.

While the dollar was nominally stronger well into the afternoon session, it lost strength as the day wore on. Bond traders seem to have gotten it more correct than the currency folks. The yield on the10-year was down 0.065% while the face price rose, as it will in that counterbalanced relationship.

What all this means, as expressed in the solid if unspectacular rise in U.S. equities, is that the market seems to be settling on December (if not later), as the FOMC’s first realistic opportunity to increase interest rates. We’ll go with December because it is still so far away, but there is a kind of utopian quality to choosing some date, any date. If we were radical, we’d say it’s more likely coming in the first quarter of next year.

Gold is up around $2.50 at 4PM in New York, struggling against the stronger dollar. (Our sense is that there are tens of thousands of buy orders that came in this morning after missing the Friday trading session. Silver is also up, but more significantly than its big sister. It is nosing around the $19.00 per ounce mark again.

The big data release for the U.S. comes on Friday when we see what’s been cooking on the employment front. We’re forecasting an average to slightly above average move up, but nothing that wouldn’t be in line with a 0.3% rise in consumer spending.

The PCE has been moving sluggishly in relation to personal income. We saw only one very strong month for both income and spending this year and that was back in April. The CME’s FedWatch sent out a strong signal today as bidders first pushed up the probability of a rate rise in September and quickly pushed it back down. The probabilities for a rate hike in September now stand at about 25%. Additionally, the VIX started the day low and went lower. The volatility standard index is now under 13.00.

Last but certainly not least for the day, was the plunge in oil. Crude’s volatility has become somewhat of a constant companion for us in the markets. The reason for today’s decline is surging output on the part of OPEC. That tells us either they are getting ready to come to an output deal among themselves and the non-OPEC producers, or they don’t trust anyone in their circle in the least. Either way, the Saudis are winning this rough war of attrition.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer