Indecisive Gold Traders Ride Dollar Coattails

Gold traders could not decide which way to bid gold today, and so seemed to go on autopilot, allowing the U.S. dollar to do the work. Silver and the other two precious metals followed suit.

Weighed down by the robust dollar and continuing weak global demand, equities shed all of their gains from last week’s Fed rally. Adding to mildly bullish sentiment for gold is the sixth straight month of declines in U.S. durable goods orders.

Weak U.S. economic data was a theme of comments made by Chicago Fed President Charles Evans in London today. His impressions are fueling speculation that interest rates in the U.S. will stay low, or even turn lower.

"Given uncomfortably low inflation and an uncertain global environment, there are significant risks, but few benefits, to increasing interest rates prematurely," Evans said. "A prudent risk-management and goal-oriented approach to U.S. monetary policy dictates that we continue to assess inflation developments for some time before generating more restrictive financial conditions.”

He added that “Economic activity appears to be on a solid, sustainable growth path. However, inflation is low and is expected to remain low for some time — and I have serious concerns that inflation will run even lower than I expect.”

Evans believes that the risks of raising rates too soon far outweigh those of raising them too late, particularly given weak inflation and an unemployment rate that, at 5.5%, is still higher than the 5% level he feels is sustainable. 

While many of his colleagues are looking beyond the recent quick rise in the dollar, Evans is concerned that the strong dollar's "clear disinflationary pressure" could become embedded in expectations and make it even harder for the Fed to reach its 2% inflation target.

Crude oil rose on the civil war in Yemen, which some worry could spill over to Saudi Arabia and cause supply disruptions. Whether that is realistic cannot be fully confirmed at the moment, but it seemed a good enough excuse for oil bulls to bid up the black gold despite a continuing rise in inventories, particularly in the U.S.

All these factors helped gold, but the yellow precious metal will soon have to go into the world on its own to make its way above and beyond getting boosts from the almighty dollar.

Wishing you as always, good trading,