Volatility In the US Dollar, Oil And Equities Again Takes Gold And Silver Higher

The looping, swooping, rising and falling in crude today dragged U.S. equities along for the ride. West Texas Intermediate at one point was up to $33.50 per barrel while Brent hit a slightly higher level.

Both crudes are now off 1.75% to 1.90%% on the day. Natural gas fell 2.75%.

And, depending on the hour you choose, the Dow, S&P and NASDAQ are either up 0.20%+/- or down 0.20%+/-. Call it oscillation, fibrillation, or gyration. But oil and stocks are a duet running through their repertoire of tricks. (At 3:45 EST, U.S. equities are again in positive territory.)

This is, of course, good for gold prices, which hit a three-month high today. Gold has backed off that high but only marginally. At 3 o’clock it is still up over $15 per ounce. Silver is also up solidly in mid-afternoon trading, having risen by 1.65%.

Gold was given a solid assist from a U.S. dollar that continued to weaken. The dollar lost strength due to a general perception that economic data will force the Federal Reserve not to raise interest rates soon. Some analysts are saying there will not be another rate rise again this year at all.

It’s too dicey to look that far into the future, but certainly world weakness is beginning to leak into the U.S. economy’s previously airtight defense system. President of the New York Federal Reserve Bank, William Dudley, yesterday added his dour view on the world economy, helping to push the greenback down.

Friday, however, will see the release of January’s labor report and, if it is decent to good to excellent, look for the commentaries to quickly reverse field and speculation begin again about what the Fed might do at its next policy meeting.

While it may be that much of gold’s strength is attributable to safe-haven buying, do not discount gold as having its own momentum based on longer-term considerations such as weakness in developing markets and an oversold market that has hung on far longer than seems reasonable (to us, anyway).

The yield on the benchmark U.S. 10-year bond softened a bit today, as fallout from the probable rate-rise pause began to impress traders. The interrelation between static low rates and the attractiveness of bonds versus gold becomes more apparent as we await Friday’s jobs report. Low bond yields increase the lure of gold and other precious metals.

Finally, as we are poised to close out today’s fundamentals report, the White House said this afternoon that it would seek a $10 per barrel fee on oil that would be phased in gradually over five years. The proceeds from the fee/tax would fund future clean-energy transportation infrastructure.

On the surface, it’s not a bad idea, but the use of a set dollar amount and not a percentage-of-price cost has gotten us in trouble before.

More will follow in the days ahead on this provocative proposal.

Wishing you as always, good trading,