Gold prices tested the 50-day moving average (50 DMA) overnight, before recovering to near unchanged at the New York open. Prices are still in a downtrend that began on April 1st, as bets that the US economy has turned the corner increase.
The dollar gave up overnight gains to open slightly negative in US trading, while stocks opened lower. Crude oil was lower last night, hitting a four week low, but has spike in New York as it tried to move into the black in volatile trading.
We see support this morning at the 50 DMA of $1,215, then $1,207. The first resistance level is $1,225, followed by $1,229.
Markets are still being affected by the ripples from Friday’s non-farm payroll report. Speculation on whether the Fed will raise interest rates in June or not is putting pressure to the downside for gold. Even so, hedge funds are bullish on the yellow metal. After the best quarter since 1986, and being the top-performing commodity last quarter, gold has its fans among some of the biggest funds.
While the Fed may or may not raise rates this spring, the rest of the world is being presented with the stark reality that their central banks have failed to halt economic downturns. Wholesale prices in the EU fell by 0.7% in February, and -4.2% year to year.
On the other side of the world, the Japanese yen recorded its best quarter against the dollar since 2009, rising 6.8%. This is exactly what the Bank of Japan did not want, especially in the wake of turning to negative interest rates.
The proof in the pudding seems to show that negative interest rates have been a central bank failure.
Oil speculators are waking up to the crude truth, that the touted grand meeting between OPEC and Russia will result in nothing. Saudi Arabia pounded the point home when they reiterated that they would not agree to freeze production if Iran didn’t. There’s literally zero chance at that, as Iran said it would only discuss a production freeze after it rebuilt its exports to pre-sanctions levels.
Saudi Arabia has announced a budget overhaul of new fees that is slated to save the kingdom $100 million over the next 4 years. These actions will bring some of the pain of lower oil prices to the general public. The stated goal is to balance the budget by 2020.
Wall St. had opened lower this morning, but just when it was set to break into positive territory, durable goods and factory orders were reported to have fallen. This news sent stocks sharply lower. It remains to be seen if broader economic factors erode the boost from Friday’s non-farm payrolls report.
The CME FedWatch tool still gives only a 5% chance for a rate hike this month, and a 28% chance for June (there is no FOMC meeting in May.) However, Boston Fed president Eric Rosengren said today that the market was too dovish in its interest rate outlook, specifically naming Fed fund futures prices as a forecast tool.
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