Gold Tumbles Again on Strong Dollar, Positive Interest Rate Outlook

The dollar kept at its inexorable rise, driving down gold, silver, haven currencies and face price on bonds, all haven plays that no one wants to play with.

The preponderance of gold’s decline was attributable to dollar strength. Silver was hit by downbeat regular trading as well as the greenback.

Equities rose nicely across the three major indexes. The Dow was weakest but still gained 0.20% while the NASDAQ continued to recover from a shaky November start, moving up 0.75%.

Oil was a significant drag on the Dow. West Texas Intermediate crude fell 1.38% as it continues on the rollercoaster ride being provided by OPEC. Will she or won’t she? OPEC and its comrades can’t seem to settle on production cuts. So, the market is tending to discount prices based on that.

The U.S. 10-year bond yield is nudging the 2.30% mark. This is important because real-life interest rates track the 10-year yield. Mortgage rates add anywhere from 1.25% to 1.75% to that benchmark yield level.

The dollar was up hefty percentages against the euro (0.55%), the yen (0.80%) and the Swiss franc (0.50%).

The dollar has been rising in anticipation of a December interest rate hike and today that outlook was reinforced when Federal Reserve Chairwoman Janet Yellen spoke before the Congressional Joint Economic Committee. What she said may not be the final, final word but it came across as very powerful.

"Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals" on inflation and jobs, Yellen said.

"Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability."

"With the federal funds rate currently only somewhat below estimates of the neutral rate, the stance of monetary policy is likely moderately accommodative, which is appropriate to foster further progress toward the FOMC's objectives," she said.

Yellen discussed persistently low oil prices as one reason for the low levels of business investment. (That means there is no new investment in the machines and transportation mechanisms that serve the oil business here in the United States.)

She also said that despite a 4.9% unemployment rate that is right up against the Fed's standard for full employment, there "appears to be scope for some further improvement in the labor market." That was a little lukewarm water thrown on the rate-hike fire.

There was a bit of further good economic news that could fuel further speculation that the U.S. economy was heating up.

Housing starts truly surged to a more than nine-year high in October. “Suring” is a word often bandied about mindlessly, but this appears to be the real McCoy. Builders ramped up construction of single and multifamily homes, bringing hope that housing will contribute to economic growth in the fourth quarter.

Groundbreaking jumped 25.5% to a seasonally adjusted annual pace of 1.32 million total units, the highest level since August 2007, or a little more than 100,000 per month. The percentage increase was the biggest since July 1982. (Ronald Reagan was president and Baby Boomers were about midway through their working life, if you need reference points.) Housing starts for the volatile multi-family segment soared 68.8% to a 454,000-unit annual pace.

Moreover, starts increased in all four major economic regions last month.

A tightening labor market, which is starting to drive up wages, is driving the housing market. On a soberer note: permits for future construction edged up only 0.3% in October. That is due to the surge in starts before winter sets in, but it will have ripples throughout the early part of next year.

Wishing you as always, good trading,