New Meaning To The Phrase Range-Bound As Gold Struggles

There are a host of reasons that explain the difficulty gold has had in the last two months, a battle that has grown more intense since May 26th.

Let’s do a short litany on the incidental events that capped gold and then move onto larger questions. The near deal with Greece on debt has taken away some of the sentiment for safe haven buying of gold. The ECB will continue, and perhaps expand, its bond-buying QE program. There were higher yields in the European bond markets.

Regardless, today the overriding factor is the U.S. economy. May’s fairly hot private jobs growth by private stats agency ADP was reported out. The number of private sector jobs in the U.S. rose to 201,000 in May. The U.S. Department of Labor usually reports about 5% to 15% higher than ADP. We’ll get that data later this week.

Bizarrely cold weather and a large amount of snow coupled with a labor dispute at West Coast ports hobbled the economy early in the year, with output shrinking in the January-March period. In April, Labor said employers added 223,000 jobs, a healthy rebound from the 85,000 added in March.

There have been other headwinds for the economy. A strong dollar tamped down exports, and a pullback in oil well drilling hurt employment. So, the Labor report will tell us whether the world’s largest economy has risen from its winter funk or will take longer to revive.

But today we see a harbinger of what may be. The U.S. trade deficit dropped sharply in April as exports posted a modest gain and imports fell, raising hopes that trade will not be such a big a drag on economic growth in the current quarter as it was in the first quarter.

April’s deficit dropped 19.2% to $40.9 billion after surging to $50.6 billion in March, the Commerce Department said today in its report. The March deficit was at its highest level since late 2008. The big surge in the deficit reduced overall economic growth by nearly 2% in the first quarter. That sent the gross domestic product down at an annual rate of 0.7 percent.

In April, exports edged up 1% to $189.9 billion, led by a big rise in commercial aircraft sales. Imports fell 3.3% to $230.8 billion.

The big deficit increase in March reflected the end of a labor dispute (same as the one that affected employment), which tied up West Coast ports. With ports fully operational a backlog of imports from Asia flooded into the country and were booked in a single month as opposed to being spread out over a few months. The dip reflects the moving of that pig through the python.

For the first four months of the year, the deficit is running 1% higher than the same period a year ago. Economists believe this year's deficit will increase modestly from the revised $508.3 billion deficit in 2014, slightly reducing overall growth.

While the U.S. dollar today added punch to the price of gold, regular trading stole it all away and then some. Gold is down in late afternoon trading a little more than $7 at 1185. It bottomed for the day at 1180 at one point. The dollar’s fluctuation tells us a lot about the other parts of the world economy. (For instance, Greece and the rest of Europe seem to be reconciling their differences on debt.)

The regular trading tells us, however, that everyday players in gold aren’t inclined to show much faith right now.

If Labor’s numbers tick higher than anticipated, we’ll get new blowback on rate jitters. If the data are soft, look for more sideways action. 

Wishing you as always, good trading,