Weaker Dollar Helps Gold But Traders Say Otherwise As Equities Plummet

Amidst an off-handed remark by Fed Chairwoman Janet Yellen about stocks being very high.

Fed Chair Janet Yellen made the comment at a panel discussion with IMF Managing Director Christine Lagarde. "I guess I would highlight that equity valuations at this point generally are quite high," Yellen said.

"They're not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low but there are potential dangers there," she concluded.

But issues larger than Janet Yellen’s talking points are troubling the equities. It is clear the world economy has slowed considerably. And, while speculators may be interested in driving up stock prices, underneath that is genuine concern about the lack of vigor in Europe, East Asia and no North America.

We’ve said it before. We’ll say it again. There simply is not enough credit to fuel a genuine recovery. We’re not talking about reckless lending but rather lending initiatives by banks and other financial institutions. They seem to have lost vision.

Outside markets like crude oil did nothing to sway bearish traders from their appointed rounds. That is because crude rode the same dollar weakness that affected gold today. There were some genuine market factors involved in today’s crude rise. Oil was bolstered by the first U.S. crude stockpile drop since January. However, traders and investors are wary and pared gains on profit-taking moves.

The dollar was 1.5% lower against the euro, which obviously raises gold’s price. The dollar fell for a couple of reasons.

The first is that European bonds are showing better yields, now well above the near negative rates we were seeing just a month and a half ago.

The second, which should prepare us for Friday’s Department of Labor report, is ADP’s private employers report. It showed only 169,000 new jobs in April. While Labor’s data isn’t precisely parallel to ADP’s a low ADP number will probably translate to a low Labor Department figure.

That means we are more likely to see the Fed hold off on an interest rate rise. Perhaps the rest of Q2 and all of Q3 will prove to be more robust. We are thinking that December for a rate rise is looking almost as likely as September. Shocking as it may seem, there is talk among certain fed members and a great many economists that the interest rate should actually decline.

This all adds up to reinforcing what we’ve known for a while: gold is and will be trading in its current range.

Wishing you as always, good trading,