Not The Bounce Gold Bulls Were Looking For

A modest bounce after yesterday’s bloodbath has once again thrust the yellow precious metal into the “range game.”

Some might have expected a bigger up-move after the minutes of the FOMC’s April meeting were released. Those minutes clearly express the feeling among committee members that yes, the economy is improving, but no, not enough to trigger a rate hike. For instance:

“The pace of improvement in labor market conditions moderated somewhat, and the unemployment rate was unchanged over the intermeeting period. Consumer price inflation continued to run below the FOMC's longer-run objective of 2 percent, partly restrained by earlier declines in energy prices along with further decreases in non-energy import prices. Market-based measures of inflation compensation were still low, while survey measures of longer-run inflation expectations remained stable.”

And:

“Real personal consumption expenditures (PCE) increased in the first quarter, albeit at a much slower pace than in the fourth quarter of 2014.”

As well as:

“Residential investment increased at a slow pace in the first quarter, and other indicators of housing-sector activity remained weak.”

We could go on ad nauseam, but you get the picture. If you’d like to read the minutes in their entirety, go here.

The equities markets, of course, like the neutral stance with no rate hike. Cheaper money is good for everyone but especially for investors. Low rates encourage risk.

Crude oil liked the news as well and bounced back significantly after yesterday’s sharp loss. (And reversed a five-day decline.) However, crude’s low pricing in 2015 is almost wholly dependent on OPEC’s market strategy, especially Saudi Arabia’s.

Crude also benefited from fair-to-middling dollar strength, a strong Japanese industrial report and the upcoming big Memorial Day driving holiday. More gasoline will be burned and with refineries already at 92% capacity, there is no wiggle room to produce more.

The dollar seemed to take some heart from the Fed minutes, but really what helped it is a more granular analysis of how the EU through the European Central Bank will roll out its quantitative easing program. It will entail less money than previously thought and will last longer. However, the buybacks will be front-loaded during the first few months of the program before the banking foot is taken off the pedal. So, we can expect a jump in euro-activity almost immediately. That will serve to strengthen the dollar.

Gold and silver will face the dollar headwind regardless of any other wildcard factors that might enter the markets.

Wishing you as always, good trading,