New Surge in Dollar Sinks Gold

Despite reasonably strong upward movement via regular trading, gold took it on the chin because of a surging U.S. dollar. Silver met the same fate but without the backing of regular trading efforts. Gold was off around 0.55%; silver was off 1.00%

The dollar was up almost 0.75% against the euro and nearly 1.90% against the British pound.

Oil also suffered at the hands of the strong dollar, although additionally, given the lingering skepticism about OPEC and its brethren in oil producing, traders are just beginning to insist that there be some concrete action to underpin the talk.

The oil cartel v.2 has to keep looking over its shoulder at higher-cost producers. If they move too quickly, they threaten to cast the world into recession. If they move too slowly, it gives producers like the U.S. and Canada time to adjust their output and generate anew a glut. Because of global economic sluggishness, demand is also looking soft.

West Texas Intermediate was off more than 1.00%. Brent North Sea fell 1.30%.

The Dow was off 1.00%, the S&P 500 1.25% and the NASDAQ down 1.55%.

Equities were hurt by falling oil prices but there were other factors at work. Overall, the rising dollar – which we have touched on – plus concerns over the Chinese housing market and central bank tightening beyond the Fed are all weighing.

Also weighing are earnings reports that will reflect Q3 income and earnings. So far, Honeywell came in belly up and Alcoa fell short of projections. We think the season will be mixed but meanwhile, fear is ruling until we see facts and figures.

Even though the data has yet to be released, the feeling is that major healthcare companies are going to come in below expectations and that materials, although by now they have recovered, will show weakness.

Interestingly, bond yields seem to have stalled for the moment. The U.S. 10-year bond is hovering just over the 1.76% mark.

If we look at a grouping of safe haven plays, we find that precious metals, the yen and Swiss franc and bond yield are all down or stagnant. Oddly enough, equities, too are soft.

That tells us that money has been hightailing it to the sidelines and may very well be waiting first for Q3 earnings season to be over and then for the FOMC in December. Will they raise rates? If they do, so what? If they don’t, so what?

It’s time for companies to focus on their core job: creating products and services that make money.

Wishing you as always, good trading,