With the dollar trending slightly lower on Friday morning, spot gold opened above $1,256 per ounce, adding 0.5% in early trading. Spot silver rose by an even wider margin, gaining 1.15% to trade above $16.70/oz.
Platinum was essentially flat around $925/oz while palladium gave up 0.5% to slip below $880/oz.
Despite both the expectation and the reality on the ground of higher interest rates in the U.S., the dollar has not responded with a fresh rally. In fact, the greenback was down 0.2% on the DXY index this morning, falling to 97.4. Beyond defying normal economic logic, the lack of a positive response from the USD could be indicative of a larger shift in policy by the government regarding the currency. In the past, the U.S. has stood hard and fast behind the notion of a “strong dollar policy,” generally promoting a stronger currency at the expense of greater exports and overseas profits. President Trump has tacitly indicated he’s more open to a weaker currency if that’s what generates the best results for the economy.
Another reason the lack of a rally for the dollar is a bit surprising is because the crude oil market has largely gone the opposite direction in recent weeks. The preservation of production cuts by Russia and OPEC member nations helped crude prices edge higher this morning, although WTI crude remains stuck below $43 per barrel. Meanwhile, Brent crude was modestly above $45/bbl. Given the fundamentals in place—an oversupply of crude and ever-greater alternative energy options—many are characterizing oil’s mini-rally as merely a “dead cat bounce,” or just a momentary reprieve that doesn’t change the overall downtrend.
All Eyes on Washington
Markets undoubtedly will ebb and flow to the rhythms of the healthcare debate that will kick off in Congress. Yesterday, Senate Republicans unveiled new healthcare legislation that is virtually a mirror image of the proposal that passed the House of Representatives. If passed, the new law is seen as a big win for banks and businesses by removing the burdensome taxes and “individual mandate” for someone to buy health insurance that are seen as the worst problems plaguing the current healthcare system.
For this reason, it is in essence a tax bill, transferring a considerable amount of wealth back to the top tax bracket. (Warren Buffet claims that under this bill, if passed, he’d receive a cut of nearly $700,000 to his tax liability.) Some opponents have criticized the proposal for provisions that make severe cuts to Medicaid over the next 15 years. The bill will now be open to debate in Congress. If nothing else, this legislation would fulfill the standing seven-year promise to repeal and replace the Affordable Care Act, better known as Obamacare.
Although stocks in Asia posted gains overnight, the equity markets in Europe and the U.S. opened in negative territory on Friday morning. Treasury yields were largely steady, with the 10-year T-note remaining at 2.15%.
We have also reached the one-year anniversary of the “vote that shook up the world,” Britain’s decision to leave the European Union, better known simply as Brexit. While the initial panic over the break-up has proven to be overblown, the full ramifications for the U.K., Europe, and world markets is still unclear. With such uncertainty, many traders are maintaining short positions on assets in the U.K. This has sent the pound sterling tumbling from its early summer high of $1.30, yet the benchmark FTSE 100 index is still close to all-time high levels. (Real estate in London remains the most expensive in the world, of course.)
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.