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Extreme dollar strength and 1 month T-Bills yielding 5.59% move gold lower

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Market participants are witnessing extreme dollar strength and exceedingly high yields in short-term Treasury Bills as continued uncertainty and angst surrounding negotiations to raise or suspend the debt ceiling are still at a stalemate. The US dollar has climbed higher for the last three consecutive weeks after trading to a low at the beginning of May at 101. The dollar gained 0.42% today with the dollar index currently fixed at 103.815. That is a net gain of almost 3% in May.

Although salmon consistently swim upstream, gold has been fighting the currents of dollar strength and high yields and has been unable to gain any traction as a haven asset because no legislation has been forthcoming from negotiations. After hitting a high of $2085, just shy of the record high about a month ago gold prices have declined dramatically trading to a low today of $1958.40. Gold futures have traded below $1960 per ounce on four of the last five trading days.

The Federal Reserve released the minutes from the last FOMC meeting held in May. The minutes revealed that numerous Federal Reserve officials believed the most prudent path would not contain rate hikes in the near future. That being said, Fed officials were not unified in that belief.

There were Federal Reserve officials that said that because the economy has evolved as anticipated “then further policy firming after this meeting may not be needed.” The minutes also revealed that some officials of the Federal Reserve underscored the need that they should communicate that interest rate cuts were not likely this year although further hikes cannot be completely ruled out. The minutes showed that members were laser-focused on stress in the banking system and the failure of multiple banks in the United States incorporating that into their forecast and more importantly forward guidance.

Even a more dovish stance by Federal Reserve members was not able to be supportive of gold pricing as the precious metal tumbled its near recent lows. It seems the expectation of market participants is under the assumption that a resolution to the debt ceiling negotiations will be forthcoming. That assumption combined with extreme dollar strength and strong yields from short-term US debt instruments continues to keep gold pricing range bound and trading near the lows of $1960 per ounce.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer