Gold is trading at a 3-week low this morning, as a stronger dollar weighs on commodities. The dollar has strengthened nearly 1% to hit a 4-week high against a basket of currencies, since yesterday afternoon’s release of the April FOMC meeting minutes.
That big dollar rally continues to take the wind out of the sails of crude prices. June WTI contracts fell 12 cents (0.3%) yesterday, while Brent futures lost 35 cents (0.7%.) Losses accelerated this morning, with WTI down 1.5% and Brent down 1.9%. In addition to the stronger dollar, a surprise 1.3 million barrel build in US crude stockpiles are depressing prices.
Stocks are down across the globe, as traders worry about what higher US interest rates will mean for their economies. Wall St. is sharply lower, despite news that WalMart beat earnings estimates.
Gold futures were down $2.50 yesterday, settling just minutes before the FOMC minutes were released. Spot gold took the full brunt of the news, losing $20.80 to close near the bottom of the daily trading range, at $1,258.00.
Today’s technical numbers have first support at $1,240, then $1,234. Resistance is seen $1,248, then $1,253.
Wall St. pared losses to close basically flat yesterday, as gains in bank stocks lifted the Dow and S&P 500. A rise in benchmark interest rates would allow banks to charge higher interest rates, providing some relief from the big squeeze that zero (and negative) interest rate have had on their bottom line. Conversely, higher interest rates make it more expensive for companies to conduct share buybacks. Buybacks have been a major driver of the bull market in stocks for the last several years, but are coming to an abrupt halt.
First-time jobless claims for last week fell from 294,000 to 278,000, but was still more than the 275,000 the market was looking for. This ended up having little effect on stocks this morning.
Sentiment in the market regarding a Fed rate hike took an abrupt turn upward yesterday. The CME FedWatch tool jumped from a 19% chance of a June rate hike to a 34% chance immediately after the FOMC minutes were released.
Bloomberg asks “Could Inflation Be Gold’s Long-Lost Friend Coming Home?“, noting that gold was used as a hedge against inflation in the past. The Fed has characteristically been behind the curve when raising benchmark interest rates in an inflationary environment.
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