Gold Weakness Due to Dollar Strength. Silver Gains.

Gold is off about $1.70 per ounce today, virtually all of that loss coming from dollar strength. Silver gained via regular trading strength, even with the high-dollar headwinds.

The betting on a December interest rate hike by the Fed keeps tending toward the “yes” column. In early afternoon, today, the CME FedWatch showed that the traders thought there was a 67.5% chance there would be a raise to 50 - 75 basis points while some thought there was a 6.7% chance that rates would rise to 75 – 100 points. Yet others think there is a 25.8% chance rates will remain where they are.

The reason we lead with this is that higher interest rates or even the threat of higher rates means a stronger dollar (not precisely what the U.S. export sector is looking for right now). A stronger dollar means there will be pressure on commodities traded in dollars, such as the precious metals and oil.

Indeed, the greenback touched a nine-month high today, which it has since backed off of. All the dollar strength and renewed predictions for higher rates comes on the tails of better U.S. economic data.

Preliminary data from financial information company Markit on Monday showed U.S. manufacturing hit its highest level in a year during the month. That seems to have re-invigorated traders even more after a reading last week showed U.S. home resales beat expectations in September.

As might be expected, that put upward energy into the yields of U.S. government bonds. The 10-year benchmark’s yield moved well above last week’s 1.75%. Naturally, face prices fell.

Crude oil struggled again today as it became clearer that everyone is not on board OPEC’s call for production freezes or cuts. Iraq seems to be sitting out that game. It needs the revenue as it tries to recover from decades of war and as it bleeds money in the fight against ISIS. West Texas Intermediate and Brent North Sea are both off around 0.50%. They had been off by 2.00% each before recovering in afternoon trading. WTI struggled back over the magical $50 per barrel mark.

U.S. inventories add an unusual twist to this year’s stockpile situation, and therefore to pricing ups and downs. Usually at this time of year, crude inventories start to build as refineries go into maintenance mode to switch from regular or summer blends to winter blends of gasoline.

However, this year, those summer gasoline stockpiles are higher than normal and some simple processes can switch that blend of fuel over to winter types.

When all that works itself through the system, any oil stored offshore in floating receptacles – and there is a lot – will then come onshore and increase inventories in the U.S. (To clarify: offshore floating storage is not counted normally as part of U.S. stockpiles.)

Equities were up, not terribly strongly except for the tech-heavy NASDAQ. Gains on the Dow and the S&P 500 were capped by oil prices and the stronger dollar.

Some of the uncertainty generated by the upcoming elections is beginning to fade. According to the Brookings Institute, Wall Street traders would like this outcome: Clinton wins while the Republicans retain control of the House and Senate, even if by slim majorities.

In a different study, Credit Suisse showed through data analyses that, looking back to 1928, stocks have turned in their best performance with a Democrat in the White House and Republicans in control of both houses of Congress. (The worst performance came, on average, with a Republican president, a Republican-controlled Senate and the Democrats in charge of the House.)

Wishing you as always, good trading,