Production Stalls Driving Dollar Down And Gold Up
Factory production stalled significantly in April, as American manufacturers deal with blows that range from a strong dollar to cheap oil.
The unchanged reading in manufacturing followed a paltry 0.3 percent March gain that was slightly larger than previously estimated, according to a Federal Reserve released today. When adding mining and utilities into the figures, total industrial production declined for a fifth consecutive month, however.
The strong dollar (which has been falling during the last five weeks) is surely one culprit. However, overall weaker global markets, independent of the dollar’s position, are also to blame. Additionally, the cut back in U.S. oil production and therefore the purchase of equipment and vehicles related to the sector have also hurt industry.
It goes without saying that the dollar is losing strength over these developments. The greenback was also hit today by a dramatic decline in consumer confidence. The preliminary reading issued by the University of Michigan for May thus far puts that sentiment at a seven-month low.
The weaker dollar helped to support gold although in regular trading the yellow precious metal was up only 0.15%. Traders are letting the dollar do the talking.
We hesitate to make sweeping generalizations. We’ll go out on a limb here, though, and say that the American economy is finally feeling the effects of the cessation of QE3 and that new momentum has to be found for the American economy to regain its mojo. Our take is that there has to be more money put in the hands of consumers.
We said some years ago that weak inflation is a far greater threat to any economy than a slightly overheated pace. And here we are. We’d like to issue a memo to all those who control the money supply: we do not live in the Weimar Republic in 1926.
U.S. equities were either marginally up or marginally down today. Nothing spectacular happened there that would affect gold.
West Texas Intermediate was down a very, very small fraction while Brent was up a very small fraction. Crude is having a tough time staying above $60 per barrel, the first stage where we might see a rebound in U.S. production. We won’t see a substantial improvement in oil output until it hits $65 or perhaps even $70.
While technical indicators may be telling us one thing – buy – fundamentals still seem to be a little questionable. If the dollar falls much more it will reignite fears of a Fed rate increase. That in turn, will weigh heavily on gold and silver.
Fundamentally, it seems as if we will continue to trade in a range. What’s changing is that price movement will be slower.
Wishing you as always, good trading,
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Gold Forecast: Proper Action
This morning we sent ot a trade alert:
Buy Gold @ market (current 1224.80) place protective stop below 1208
Buy Silver @ market (current 17.56) place protective stop below 17.09)
Maintain both long gold and silver, maintain current stops
Gold Market Forecast
Considering that gold prices began this week well below 1200, with the intraday low of the week at around 1180, and closed strongly higher at around 1224 per ounce, we have seen quite a key reversal and turnaround in the precious metals markets.
Of course, we can partially thank weakness in the U.S. dollar adding fuel to gold’s current fire, as well as short covering and true buying-the-dip mentality.
The key to today’s price activity is that we started off the week trading just above a former resistance level at 1221 to 1223. The importance of the fact that gold prices were able to recover so significantly and to trade and close above former resistance cannot be overstated.
On today’s video report we will highlight and illustrate a pattern originally identified and named by Steve Nison called a ”scouting party." This particular pattern will unfold if a particular market price is testing a current support or resistance level. In this case it is a resistance level that we are testing, and the thought behind this pattern is that initially we will see the market trade into and above resistance to test the fortitude of the bearish faction. If the bearish faction remains strong, prices will quickly drop below resistance and begin to trade lower. If the bearish faction is weak, action will move the price above former resistance to form what Nison has termed the “beachhead." It is from this point that prices will trade above former resistance and in essence turn that price point into support. I believe that this pattern is currently unfolding in gold.