A Federal Reserve-induced dollar rally spurred short-covering in the greenback that spilled over into forex and commodities markets this morning. Gold traded as low as $1,337 an ounce in early trading before recovering. Gold futures settled at a two-week high on Thursday, up $8.40 to $1,357.20 an ounce. Spot gold closed at $1,352.10 Thursday, for a gain of $3.70.
Spot silver was also down this morning, giving back more that 2% before paring losses. Spot silver gained nine cents yesterday to close at $19.70, while September silver contracts gained the same amount to settle at $19.74.
Oil prices are down on Friday, threatening a six-day win streak because of headwinds from the stronger dollar. Brent crude contracts gained more than 2% yesterday, while Nymex (WTI) contracts rose 3%.
Markets were fairly choppy as both the gold price and the stock markets responded to seemingly contradictory comments from Fed officials regarding the chances of a rate hike before the year is over. Even though common sense should tell us to take these hawkish overtures from the Fed with a grain of salt, traders predictably had a knee-jerk reaction to the rhetoric.
The betting markets assign about a 45% likelihood of the FOMC hiking the federal funds rate this December. Though the committee came into 2016 forecasting four rate hikes over the course of the year, it appears that a single rate increase in December—just like last year—is the scenario most in line with current market expectations.
The dollar rallied on the improved expectation for higher interest rates in the near future. This pushed gold in the opposite direction, though the yellow metal eventually recovered by the end of the trading session.
Some optimism was expressed about first-time jobless claims unexpectedly falling by 4,000 last week to 262,000. This continues to drive confidence in the job market and the employment outlook. Yet, the bond market remains expensive as investors have piled into Treasurys for their perceived safety. 10-year T-note yields remain stuck as low as 1.55%.
Meanwhile, U.S. stocks have also responded to the rate hike talk. Wall St was lower on Friday morning amid lower trading volumes. Traders have (finally) become a bit more cautious about trusting the stock market to offer the same returns over the rest of 2016. Most European stocks were also in the red on Friday morning.
The main economic report being released today is the Baker Hughes Rig Count, which will be announced at 1 pm EST. The data is invariably used as a gauge for the current supply and demand of crude oil and gas in North America. Although there are continued murmurs about a production freeze from Saudi Arabia supporting higher oil prices, Brent crude slipped from an eight-week high this morning.
In the currency trade, the U.S. dollar was 0.4% higher on the DXY index this morning, trading at 94.5. While the Japanese yen and British pound sterling remained subdued as the two currencies chart opposite directions—higher for the former, lower for the latter. The euro was firmer at about $1.13.
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