falling-dollar

Gold, Oil Up As Dollar Falters

January 4th, 2017 by

The U.S. dollar has given back all of Tuesday’s gains this morning, which is giving a lift to precious metals, oil, and stocks. The DXY dollar index has fallen from its Tuesday close of 103.21, to trade at yesterday’s open of 102.83. Spot gold hit a high of $1,168 per ounce overnight, and is trading around $1,165/oz this morning. Spot silver is seeing minor gains this morning, after closing yesterday up 2.46% to $16.27/oz.

Platinum Group Metals Surge

The big news in precious metals this morning is palladium. The quiet cousin of platinum is anything but, up $32 in early trading, on top of a $30 gain yesterday. This rally puts the gains for the palladium price at 8.5% in the last day and a half.

palladium

Platinum was neck-and-neck with palladium Tuesday, closing $35 (3.88%) higher. It’s “only” managing gains of $9 this morning. Although they share certain commonalities with the other precious metals, platinum and palladium prices are most sensitive to changes in industrial demand, as they are important components in technologies like catalytic converters in automobiles. The most recent numbers for U.S. auto sales will be released this morning, which should have an impact on PGM prices one way or the other.

Euro Area Inflation

The falling dollar, combined with better than expected inflation numbers in Europe, are giving stocks on both sides of the Atlantic Ocean a leg up as markets opened on Wednesday. Higher oil prices and a weaker euro were credited with the unexpectedly strong rise of both consumer and wholesale prices in the EU. The EUR/USD exchange rate is just shy of $1.045, close to a 14-year low despite the setback for the dollar. For a region desperate for even the faintest signs of inflation, the slumping euro is generally seen as a positive development.

falling-dollar

Wall St also opened higher on the back of the weakening dollar, with the Dow Jones making yet another run at the unprecedented 20,000 mark. (Get out your “DOW 20K” hats, folks!) If stocks begin to falter at this resistance level as we move through the first quarter of the new year, we could see a repeat of 2016. Just like last year, the Federal Reserve raised rates a quarter-point (0.25%) in December and January poses the challenge of uncertainty more than anything else. Stocks fell by 10% and the gold price surged 25% in reaction to these circumstances a year ago, so watch out for a case of déjà vu from the financial markets.

Crude Oil Climbs

The oil market rally paused on Tuesday, as prices dropped more than 2%. Traders seem to be caught in a narrative trap, guessing about whether or not OPEC and other oil-producing countries will follow through on production cuts. Wednesday saw prices rise again, however. WTI crude traded just above $52 per barrel while the Brent crude price still held around $55.50/bbl.

Markets will also be watching the release of December’s FOMC meeting minutes on Wednesday.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product