Gold Blindsided By Soaring Dollar And Falling Crude Oil

May 19, 2015 - 4:26pm

 by Gary Wagner

If there was a doubt that the U.S. dollar had pulled out of its correction recently, today’s booming buck erased all concerns.

The dollar soared almost 1.50% against the euro, which weakened on uncertainty concerning Greece and persistent sluggishness. Additionally, the European Central Bank announced that its quantitative easing program may very well come to be described as QE-Yawn. The amount is lower and the execution slower than expected previously.

On the American side of the big pond, robust housing starts data released today gave the greenback more of a boost.

Housing starts hit their highest level in 7-1/2 years in April. That was welcome news after very weak first-quarter data.

"It is good for the growth outlook. The question is whether or not people will buy the houses they are building and whether or not consumption will hold up in the U.S. That is going to be absolutely necessary for the Fed to see," said Richard Cochinos, head of Americas G10 FX strategy at Citi in New York.

Housing starts in April were up 20% while building permits popped up 10%. Both data points came in well above market expectations. This will surely get the Fed interest rate hawks screeching again. But, as they say: one rose does not a summer make.

The feared interest rate hike – a bogeyman if there ever was one – spooked Wall Street a little, which cannot truly find its mojo.

The Dow closed in record territory. The S&P 500, after reaching for a new record, fell back. The NASDAQ showed a marginal loss.

The minutes of last month’s Federal Open Market Committee meeting will be released tomorrow. All markets are on pins and needles. What could possibly be new, different and revolutionary in those minutes? Not much, we believe.

"I thought we had moved past good news is bad news for equities. We seem to be fixated still on the Fed question in the debt markets and whether interest rates are going to go up," said Chris Gaffney, president of EverBank World Markets.

As we mentioned earlier, crude was down. West Texas fell by 3.65% and Brent North Sea took it on the chin to the tune of a 3.15% loss.

Nothing went gold’s way. Silver fared even worse. Gold was off by 1.4% while silver lost 3.35%.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action

Our stops were hit in both our long gold and silver:

Gold in @ 1224.80 out @ 1208 -$16.80

Silver in @ 1756 out @ 17.09 - .47

Gold Market Forecast

On a technical basis yesterday’s failure to really trade above the resistance area of 1221 was a foreboding note. It must be realized that both yesterday’s and today’s market price in the precious metals, along with the commodity complex, as a whole has been dynamically brutalized in terms of price by a strong U.S. dollar. Yesterday we witnessed gold closing a couple of dollars higher. The real story underlying this move was a strong dollar taking away over $10 in pricing. Today we saw a nominally weak precious metals markets with gold in fact trading only $3.20 lower on the day adding a -14.20 when we factor in strength in the U.S. dollar.

Whether we are witnessing the return of dollar strength, one thing for certain we cannot rule out is the fact that the dollar might have seen the last of this downside correction and what we have witnessed over the last few days is a pivotal reversal.