Thank Goodness It’s Less Than A Day Before The Fed Speaks

Amidst anticipation of a dovish statement by the Federal Reserve after tomorrow’s FOMC meeting, the dollar slipped against major currencies.

The dollar’s fall helped gold and silver continue to stay strong. It helped crude oil prices reassert themselves, as well.

Gold is up around 0.40% and silver rose almost 0.60%. In both cases, the weak dollar accounted for about 1/5th of the gains.

Both West Texas Intermediate and Brent North Sea rose, the former 3.00%, the latter 2.75%. Do those twin rises have anything to do with fundamentals?

Our thought is that we are already beginning to see strong consumption of oil distillates due to increased demand for gasoline and aviation fuels. The draw down is significant but the slight shortage is more likely due to refineries having been taking off line for maintenance and conversions to so-called summer fuels.

That is a situation that can and usually does turn on a dime. Saudi Arabia, Iraq and Iran are all increasing their production levels. How long that excess (on top of excess) coupled with low prices can last is anyone’s guess. Regardless the next read we get on stockpiles of both crude and gasoline will show significant drawdowns.

Even in the teeth of the big oil jump, provocatively, U.S. equities players held pat, none of the three major indexes showing firm direction.

There is one big reason and that is the waiting strategy being played out as the Fed meeting proceeds apace. We are of the school that nothing really new is going to happen at this meeting, and most likely there will be few new tealeaves to read.

As we said yesterday, “It’s not a question of whether the Fed statement that will follow the close of meeting on Wednesday will be dovish. It certainly will. The question rather is whether the statement will be dovish enough.”

There is little new to add to that. Of course one can always be surprised and suffer shock from it.

Fundamentally, however, there would be little reason for the Fed to say much more than that they are keeping a close eye on the data and will act accordingly.

Right now, given what we know about the U.S. economy and the bits and pieces of other economies that fit closely with it, September looks as if it could be a likely month for rates to be raised. hat is, unless we slip into the doldrums over the summer.

No haven plays really shone brightly today. Gold is up but regular trading is wishy-washy. The yield on the U.S. 10-year bonds rose slightly to attract more investors. Yes, the yen and Swiss franc are stronger against the greenback but so marginally as to be part of the quotidian ebb and flow pattern.

Wishing you as always, good trading,