Thanks To The Buck!
Another day and another big assist from a slumping dollar. As of 4:30 PM New York time, gold is up $12.20, of which $7.40 is accounted for by the weaker greenback. Silver is riding on the same coattail, up 19 cents, 11 cents of which is from dollar softness.
Some of the rise today is due no doubt to more tension in Ukraine, but a hidden factor is probably the assessment by the IMF that while growth is present in the world economy, it's spotty depending on which economies you look at. Given its size and diversity, the U.S. is seen as the economic engine pulling the world along, followed by the U.K. and China.
The IMF, however, issued warnings about growth not only for developing nations but for "Second World" countries like Turkey, Russia, Brazil and South Africa. These are countries that are partially, though not fully developed and are hitting various headwinds. Russia is of greatest interest to precious metals traders because of the geopolitical ramifications of that country's actions in Ukraine.
Capital flight from Russia has been severe since the Crimea takeover. Once again the law of unintended consequences has smacked a country upside the head. The capital that's fleeing Russia is headed to North America, Europe and India, in that order. China is also a beneficiary.
Chief economist for the IMF, Olivier Blanchard, said, moreover, that the declining prospects for Russia were assessed even before the Crimea crisis was in "full play."
On yet another front, Japan is going to see more sluggish growth this year - in the 1.5% range. They are suffering from ultra-low inflation as are the mainland European economic engines, Germany and France. Low inflation is also a problem here in the U.S., though not as severe.
Tomorrow the Fed will release the minutes of its March FOMC meeting. We are anticipating that the report on the U.S. recovery will be a low spark and not a cause for champaign dreams and caviar wishes. Expect the doves to do most of the singing at tomorrow's release party.
However, we are sure that the hawks will swoop in and start nattering about (non-existent) inflation. Our continuing contention is that real growth in the U.S. and elsewhere will not return until inflation goes to at least 2.5%, if not higher.
There are historical anomalies when there has been high growth and ultra low inflation. However, those were during extraordinary times - war, postwar, after a revolutionary technological development. We have none of those things now.
As always, wishing you good trading,