Gold Struggles But Stays Strong Even In Face Of Dollar Strength

Markets were driven by our usual friend – crude oil, as well as by stronger-than-expected data from the U.S. economy.

The Institute for Supply Management (ISM) said its index of national factory activity rose to 49.5 in February from 48.2 the previous month, comfortably surpassing expectations of 48.5 from a Reuter’s poll of economists.

Data also showed U.S. construction spending surged in January to the highest level since 2007. That date or year is important because we all know what came shortly after so many indicators then were peaking.

Lurking in the construction numbers though was bad news as well as good. Total spending rose 1.5% in January to a seasonally adjusted annual rate of $1.14 trillion from an upwardly revised estimate of $1.12 trillion in December. Construction spending is now up more than 10% relative to a year earlier. Finally, public spending jumped 4.5% during the month, while private spending grew a modest 1/2 percent because of declining residential outlays.

The jolt of good news had disparate effects on the markets. It pushed the dollar up against the yen and euro, mainly because traders were guessing that the Fed would raise rates come March.

That helped push yield on the U.S. 10-year bond up over 1.8% so that now we are seeing 2.00% on the horizon once more. That tells us that this was a bit of a risk on day in other markets like oil and equities.

Gold experienced the same conditions and, while we moved our stops up to protect profits, we feel as if gold is functioning as something much more than a safe haven overall. We’ll have more on that dynamic in the technical discussion in today’s video.

Despite China’s weak data from this week and last, Asian stock markets are rising along with European and American ones. Shanghai and Hong Kong were up smartly, both more than 1.50%.

The German DAX was up a solid 2.3%, well ahead of its euro counterparts. Germany’s unemployment rate fell to a record-low 6.6%. (Yes, you read that right.) The record comes in spite of a brisk inflow of refugees and migrants from other European countries.

New York indexes were all up impressively. The Dow, S&P 500 and NASDAQ rose 1.9%, 2.2% and 2.6% respectively at 3PM Eastern Time.

West Texas crude helped to push U.S. equities up, especially the Dow, but we are noticing if not a decoupling of oil and equities in general, certainly a very different ritual. They are no longer dancing cheek to cheek but rather far apart. They are, regardless, still dancing.

Waltzing back over to the precious metals to conclude, gold was off –0.35% but a third of that was due to dollar strength against the currency basket. The real winner in the complex today was palladium, which rocketed up over 5.00%.

Palladium may be a little late to the party, but it has been suffering a similar fate as had gold for a few years before this current rally. Palladium, like gold, is finally being fairly valued, which is good for all precious metals.

Wishing you as always, good trading,