Gold Jumps on Trade Deficit

October 6th, 2015 by

gold marketSpot gold was up over $14 an ounce in early morning trading Tuesday, as news broke that the U.S. trade deficit unexpectedly widened. A strong dollar led to U.S. exports dropping to a three-year low, while imports of electronics from China surged. This was the most the trade deficit had widened in 5 months.

Gold prices were supported yesterday by a bad “miss” for the ISM services PMI report, which dropped far more than expected. This led to investor demand that counteracted profit taking Monday, after Friday’s nearly $25 jump in spot gold.

Spot silver is close to a three-month high this morning, up well over 2% to break the $16 mark.

yuan-vs-dollarIn currency news. the Chinese renminbi (yuan) is now the fourth-most-used currency in international trade, displacing the Japanese yen. Even so, the yuan accounts for less than 3% of all transactions, demonstrating the continued dominance of the U.S. dollar in international trade. (However, it is this very dominance and the dollar’s relative strength to its peers that has pushed the trade deficit wider.)

RATE HIKE WATCH

bondsEven though stocks seem to have shaken off their funk lately, large players are fighting over a dwindling supply of short-term Treasury bills. Wary of bank failures, some buyers are willing to buy 3-month or 6-month T-bills at or even below zero percent interest, instead of placing large deposits in banks. If they expected the Fed to raise rates in the near future, they would not be willing to buy short-term government debt at such low prices.

This has led analysts to give a 6% chance of a rate hike in October, and only a 32% chance for a December rate hike.

 

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.