One Eye On The Greeks, The Other Eye On Data And The Fed

A Greek deal is looking more and more unlikely. The Greeks simply do not want to accept austerity as defined by core players in the monetary union, France and Germany. Even the very next meeting is in doubt because of Greek recalcitrance.

"Everyone is piling up their bets for the safe heaven as we are moving closer and closer to no deal for Greece," AvaTrade chief analyst Naeem Aslam said.

The dollar softened again today, which may be a good thing systemically for the U.S. economy, but if it spurs the data issued by government higher and stronger, it will certainly help to invite an interest rate hike by the Fed.

Although gold is now off its highs of 1192/93 for the day, U.S. dollar weakness has been a steady component of the uptick. The major weakness came against the yen after the Bank of Japan’s governor that the yen was unlikely to fall further because it was already “very weak.” That weakness against the Japanese currency ripples through the entire trading basket of other major currencies, including the euro.

Until the data is released, it is hard to estimate how much retail sales expanded. Additionally we are always confronted with a welter of different ways of slicing the pie. However, count on both the broadest and more narrow dissections to show a jump from April’s flat spending numbers and certainly one that is better than most of the first quarter’s.

It should be noted though that the savings rate of Americans is at a post 1980 high. Ironically, given the contradictory currents in an economy focused so deeply on consumer spending, that Americans are caught between rival cheerleading squads, one shouting “save,” one shouting “spend.”

Recently, lower pricing in gold did not lead to a surge in buying in the world’s largest consumers of physical product. China is slaphappy on equities. India, due to a poor monsoon season and a weak wedding season – not to mention import curbs – has not bought much gold.

Additionally, ETF outflows continue unabated, stockpiles hitting their lowest since January of this year.

A longer-term headwind being faced by gold is the yield rise in the 10-year U.S. bond, as well as a substantial bump up in the German bund. As those interest rates rise inexorably, even though not on a straight line, bonds become a preferred instrument for safe haven investment (or parking of money) over gold. The 10-years also drive other bond yield levels such as business bonds, industrial development bonds and municipals, which usually have higher yields and so attract even more money.

Finally, we have the anomaly of oil. More oil is being pumped than ever before, demand is low worldwide, (mostly due to China), and U.S. output is at its highest since the 1970s. (It has yet to decline, as predicted, because of lower rig counts.)

There was a weekly report of a 6.8 million barrel draw on U.S. crude stocks, but that has been looming for a while because of the seasonal demand for gasoline and other highly refined petroleum products associated with driving.

This pushed oil up so that energy again served as a positive outside market influence on gold. However, we believe there will be a healthy round of profit taking and that will squash the rally for now. The big draw down is a one-time event cyclically speaking as gasoline refineries gear up, produce their distillates, then drop back into less frenetic mode.

We’re not sure what reports the equities traders were reading about Greece today. It makes little matter. U.S. equities rode up significantly, although that didn’t seem to affect gold much.

Wishing you as always, good trading,