Gold Suddenly Finds Itself In Uphill Battle Against US Dollar

U.S. dollar strength pinned down any gains gold made today in so-called regular trading. The recently docile dollar really roared against major currencies, up over 1% against the euro.

But: whither the dollar in the near term? We need answers to the question as gold traders.

Vassili Serebriakov, currency strategist at BNP Paribas in New York, today said, "Our view is that the dollar is still going to do well, but probably it is a little premature to jump back into long-dollar positions because we don't see an immediate catalyst. Ultimately it will have to be the data to get people back in and we might have to wait for May's payrolls for that.”

One observation we have to make about the dollar concerns the “tallest midget theory.” The U.S. dollar will remain strong and probably grow stronger against other major currencies because much of the world is still slumping. China’s housing market problems are roughly analogous to the U.S. and European housing markets of the mid-to-late 2000s. We are seeing serious deflationary pressure on housing prices in China.

Meanwhile, we there are surprisingly robust factory and machine orders in Japan, another shell in China’s hull. It’s best not to forget that Japan is one of the most – ¬ if not the top –high-tech manufacturing power in the world. Japan’s problem isn’t industrial capabilities; it’s stingy consumers.

U.S. equities markets were narrowly up today as were European markets, which seem to be shrugging off the Greek problem, scarcely one that we feel comfortable about. Greece has been a real drag on European growth.

Then there is a rotation out of bond investment as it becomes clearer the Federal Reserve will probably not raise rates next month. (If they do, all hell will break out in gold trading tot eh downside.)

"I get a sense that investors want to rotate out of bonds into stocks and having a dovish Fed speaker helps," said Jack Ablin, chief investment officer at BMO Private Bank. "Having the Fed on the sidelines is probably the biggest thing—a Fed reluctant to tighten is emboldening investors.”

Later this week, a slew of housing data will be released. Housing starts and existing home sales figures come out later in the week, along with FOMC meeting minutes.

So, we may see sluggish price movement and low volume in virtually all markets.

Wishing you as always, good trading,