Gold Wobbles Down On Stronger Dollar Before Yellen Speech

August 24, 2016 - 4:59pm

 by Gary Wagner

Fed Chairwoman Janet Yellen’s speech in front of important central bank executives from around the world is fast approaching. The long shadow of Friday’s address at Jackson Hole prompted gold investors to move off the sideline and, unfortunately, do some selling.

That is expressive of a mindset that says Yellen is going to indicate rates will be rising sooner rather than later. However, we’re not so sure. Yellen, like most Fed chairmen before her, sticks to the scripts of the previous meetings’ minutes. We also think she will address the interconnectedness of the world’s finances, and how the goal should be to get the three or four major economic power-centers to run hot at the same time.

We’re also not sure how much a quarter-point increase in baseline interest rates in the U.S. will change the demand for U.S. government bonds, which theoretically would attract money at the expense of gold or silver.

Today’s decline in gold goes along with a reciprocal rise in the dollar, which makes gold cheaper, of course. However, there were other bearish overtones that affected today’s precious metals trading.

West Texas Intermediate crude was off by as much as 3.00%. It has been struggling to recover a bit in mid-afternoon trade. A robust 2.5 million-barrel increase in inventories unsettled prices. We were expecting a 450,000-barrel drop. Brent North Sea was down significantly, but by “only” 2.00%.

According to the Energy Information Administration (EIA), gasoline stocks were up by 36,000 barrels, compared with expectations among experts for a 1.2 million-barrel drop. Distillate stockpiles, which include diesel and heating oil, rose by 122,000 barrels, versus expectations for a 400,000-barrel increase, the EIA data showed.

Forget price freezes or price setting by OPEC and OPEC-affiliates. Oil is going to remain a problem child for a long, long time. Any reasonable uptick in crude prices will bring U.S shale oil roaring back into the marketplace. That would happen around $55 to $60 per barrel.

Equities traded lower on the air of pessimism that surrounds the potential fallout from Yellen’s speech coming up on Friday. The worry is that she will signal higher rates and that will put cheap money for investors in jeopardy.

The NASDAQ, in particular, saw some potshot profit-taking, which was based on squaring up and closing down (already!) for the weekend. In truth, there is very little news and the volatility index (VIX) is extremely stable, up off its 30-day low but well within its 60-day range.

One last citation of an index: the CME FedWatch probability of a Fed rate increase at the September meeting is about 18%. On today’s book, the probability for a hike in December is 40%.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action

We were stopped out of our trade today.

We went long gold @ 1355 (1348 spot)
 
Our stop was loosely below 1335* (Dec Comex) (1331) for a loss of $24.00 ($2400 per cpntract)
Gold Market Forecast

Inasmuch as we were expecting some sort of a major breakout, the breakout we were expecting did in fact occur. However, we saw the market break to the downside rather than toward our expected upside target.

As such, we were in fact stopped out of our trade which we will discuss in detail on today’s video report.

The key now is to take a look at our current trade models to ascertain whether we have witnessed any long-term chart damage, and update our model.

Trending Markets Forecast

US equities as a whole traded modestly lower on the day. Crude oil continued its downside move after yesterday’s out of place higher close.

As we get closer and closer to Friday's speech by Janet Yellen, we can expect an increase in volatility and trading range.