Shoe Is On Other Foot As Rising Dollar Kicks Gold Prices Down

After yesterday’s negative reaction in dollar trading due to the weak – nearly anemic – ADP private labor report, the U.S. dollar turned around almost 180 degrees today. The rise pushed gold lower.

The dollar's recovery against the euro was most generously helped by U.S. Labor Department data that showed jobless claims stayed near a 15-year low last week. That boosted optimism that tomorrow’s nonfarm payrolls report for April would show nascent strength.

We think the numbers will be on the high side of average – just good enough and just bad enough to add more confusion to the markets.

"The initial jobless claims got people a bit more optimistic about the outlook for the payrolls report," said Mark McCormick, currency strategist at Credit Agricole, New York.

"People are buying dollars back or at least closing out positions in foreign currencies against the dollar ahead of payrolls," he added.

Crude oil, perhaps returning to its “outside influence” status with gold, was down over 3% today. 

This was on news that supply is constant-to-high even though stockpiles have gone shrunk. More importantly, gasoline stocks are high just as the summer driving season in the Northern Hemisphere begins. 

We are of the school that says the short-term crunch is ending and prices are either near their current top or very close. 

U.S. equities were up nicely today, although stock investors and traders are still digesting Fed Chairwoman Janet Yellen’s comment yesterday that equities are overvalued.

Regardless of her comment’s accuracy, it has to be reckoned with. The rise in equities pricing hurt gold today.

The dollar’s strength weighed on gold much more, though. Dollar strength accounted for almost $7.00 in price loss. Regular trading accounted for about $2.00.

A further observation on the dollar: U.S. 10-year paper yields have been creeping up recently. The German Bund had been keeping pace, at least on the spread between the two instruments. Today there was readily apparent weakness in German issues. That also helped push the dollar higher.

We can’t go as far as to say that gold is directionless. However, it is drifting and it is a range-bound play. We’ve seen this for a number of months now and will not get a clear resolution until the Federal Reserve makes up its mind as to when they will hike interest rates. 

Wishing you as always, good trading