Gold Waiting for Its Chance To Come Back On Stage

Conventional wisdom, as expressed by those who have turned very bullish on European and U.S. financial stocks, is saying the Fed will raise rates in June.

We think a rate rise is a bit more of a possibility than it has been but we won’t really know until jobs data for May come in next week. Tomorrow, Friday, we will also get revised U.S. GDP figures for the first quarter. Predictions are that number will go from 0.5% to 0.9%. That’s quite a change, but even a jumbo shrimp is still a shrimp.

But, if we were to bet the family farm, we’d say, “Not just yet.” We’re also predicting that at Harvard tomorrow, Fed chairwoman Janet Yellen will soften some rough hawkish edges that have popped up recently in comments by a minority of regional Fed presidents, namely non-voter James Bullard of St, Louis.

Employment numbers, seemingly the big spook in the house, will be issued on June 3 (next Friday). The Consumer Price Index will be released on June 16, too late to have a direct effect on the FOMC meeting of June 14 and 15.

Total nonfarm payroll employment increased by 160,000 in April. Over the prior 12 months, employment growth had averaged 232,000 per month. Unemployment stayed the same at 5.0%. Doesn’t seem like we should be calling Ghostbusters just yet.

The CME FedWatch, which expresses the probability of a rate change, after an initial rise in expectations that a hike is coming, has quieted down considerably. Check here.

Gold is being buffeted by the rising U.S. dollar more than although today a weaker dollar helped. Instead, regular trading activity drove the price down today.

Gold at the moment is an actor in search of a play. There are too many alternatives for making money other than gold. We think that much of the weakness is psychological because silver, platinum and even crazy uncle palladium prospered today.

Gold, however, is imbued with a special kind of holiness in the investment church. When gold does turn the corner, we feel it will turn abruptly and sharply upward.

As we have said a number of times recently, even if the Fed does raise rates in June, how much of a slowing effect on the U.S. economy can it possibly have? The rate may be going from 25/50 basis points to 50/75. It’s not going to 1.25 in a day, after all.

U.S. equities have quieted down today in the face of all these concerns. To those worrying events, you can add the edge-of-the-seat worries adopted by those who will be dissecting Janet Yellen’s comments tomorrow.

Not to short-circuit ourselves, we also have to remember that we are heading into a long holiday weekend in the U.S. and the unofficial kickoff of summer trading. Does the word “lethargy” mean anything to you? How about “volatility?”

Wishing you as always, good trading,