Gold Surges On Haven Demand Based On Fed Worries and Asia Selloff

In case anyone was wondering what the big-dog currency on the block in Asia is, ask no more questions. As the yen goes, so goes all of Asia’s economic momentum.

The Japanese currency surged about 0.70% against the U.S. dollar, which has been weakening due to the general consensus that the Federal Reserve will not raise rates at this week’s policy meeting.

The power-glide of the yen sent the Nikkei free falling down 3.50%. The chief Shanghai and Hong Kong indexes were dragged along by contagion, off 3.25% and 2.50% respectively.

It’s no wonder the dollar is soft against all other currencies of note. The implied probability of a rate hike as measured by the CME FedWatch is less than 2.00% right now. Tellingly, the same measure shows only a 22.5% implied probability of a rate hike at the next FOMC confab following this week’s meeting. That will come in late July.

The lower greenback helped to spur gold upward, accounting for $3.95 per ounce of the gain in today’s trading. However, regular trading is solidly bullish, adding about $6.55 of the gain on the day. Silver benefited proportionately even more from the dollar’s trading action while regular trading showed tentative vitality. Some consider silver to be in the overbought range right now.

An indication that the dollar move on the day is not merely another expression of haven demand, the Swiss franc is unchanged against the U.S. currency even as the euro is considerably higher.

Meanwhile, based on the anticipation that there will be no rate rise, the yield on the U.S. 10-year bond fell to near the 1.61% marker. Those yields made a valiant but vain bid to recover late in the day.

Apparently stock traders don’t especially like the Microsoft acquisition of LinkedIn. The Dow tumbled around 0.75% while tech-heavy NASDAQ dipped three-quarters of almost a full percent. The regular S&P index was down 0.80%.

We are dealing with a few whammies simultaneously. It is clear that crude oil has stalled again below $50 per barrel and reports are again indicating that demand is slack. The gravitational pull of downbeat Asian and European trading did not help matters on Wall Street. The Brexit vote is weighing on all European Bourses.

Cheer up, everyone. While the VIX volatility index has risen yet again, hitting a three-month high, the Fed’s meeting will be over in less than 48 hours. Then we’ll get two weeks of relative calm followed by two weeks of off-the-cuff comments by non-voting members of the Fed, which in turn will be followed by two more weeks of anxiety over the July meeting.

The Brexit vote will be done in 10 days, so we will have the fallout from that either way. We feel as if the Brits will vote narrowly to stay.

Wishing you as always, good trading,