Thin Overseas Trading And Robust Buck Hit Gold

Mayday is a bank and trading holiday in Europe. That thinned out the trade volume for gold and other precious metals, as well as affecting other markets.

But, as we know, rust never sleeps. The dollar was bid up robustly today and that helped knock gold down by about $5 in afternoon trading in New York. (Gold is off its lows for the day at 4 PM New York time.)

It is a bit of a puzzle why the dollar was boosted because the ISM manufacturing index was lower in April than March, somewhat of a conundrum itself.

The final reading of the U.S. Manufacturing Purchasing Managers' Index for April fell to 54.1 from 55.7 in March. (A reading above 50 indicates growth in the sector.) It could very well be that manufacturing is still responding to the consumer spending slowdown we saw in Q1. We’ll have to wait for further data.

However, the U.S. manufacturing sector looks like it is having a cakewalk compared to other economies, so that made the dollar more attractive. The UK, Canada, and almost all of Asia either have stalled or gone into reverse in manufacturing.

China's official Purchasing Managers' Index (PMI) held at 50.1 in April, just above the mark separating growth from contraction on a monthly basis.

Japanese output showed negative growth while South Korea is mired in its worst export performance in two years. This all adds urgency to calls for more central bank stimulus in all three important Asian economies. The data is also yet another reminder of how interconnected the world economies are, especially manufacturing supply chains.

You don’t need a weatherman to know which way the manufacturing winds are blowing.

Simply put, we’ve gone from a living in a world where credit was too free to one where credit is still too tight.

Speaking of weathermen, you don’t need one either to tell you that, when economies are stuck in neutral or going backward raising U.S. interest rates would not be a particularly fortunate path in the near future and perhaps not even in the early autumn.

So the question begs… why did gold fall even in regular trading? We’ll have more to say in the technical presentations offered today, both video and written, but in a nutshell once gold fell through the 1175 level, sell orders were triggered.

One possible bright side to the fall in gold prices is that at these levels physical purchasing may become more appealing.

Crude oil seems to be the most complicated market play these days as it is beset by a welter of conflicting data and contradictory actions on the part of drillers, refiners and shippers.

Oil is in an anticipatory phase of its market pricing. "What is driving prices these days is less physical markets which remain very weak but more expectations of future tightening," said Amrita Sen, chief oil analyst at Energy Aspects.

There is still a glut in oil. There is still ample supply as we look over the horizon. There is a brimming inventory. Many producers are actually increasing their output (Iraq, for instance). Moreover, in the wings awaits the U.S. shale industry, which has been sidelined during this low-price phase in the crude markets.

Couple all that with a sluggish world economy and we’re hard pressed to see how oil can rise much above $60 per barrel.

Editor’s note: We will be launching our new trading service at the beginning of next month. For those that are interested we will provide more information on the service as well as a link for early enrollment on today's show.

Wishing you as always, good trading,