Markets are waiting on Fed Chair Janet Yellen’s remarks this afternoon at Harvard, before heading out early for the long Memorial Day weekend. Yellen will speak and answer questions from 1:15pm to 1:45pm, after receiving the Radcliffe Medal. The dollar is posting modest gains this morning after losing ground yesterday. The stronger greenback is weighing on commodities. Both WTI and Brent crude are down over 1% in early trading, after being unable to seal the deal yesterday as prices rose above the $50 a barrel mark for the first time in months.
A higher dollar and lower oil are bearish indicators for gold. While gold has often been able to battle against these headwinds this year, trepidation over a possible June interest rate hike by the Fed has put bullion on the wrong foot lately. Speculators selling on rallies has kept downward pressure on gold this week, abetted by a parade of regional Fed presidents giving dire warnings of an imminent rate hike.
Spot gold is down $5 to trade at an 8-week low. Almost all of that decline is due to a stronger dollar. Trading sentiment is only marginally bearish. We’re looking at $1,214 as first support, followed by $1,209. Resistance is first found at $1,220, then $1,225.
Gold gave up early gains yesterday, when Federal Reserve governor Jerome Powell dogpiled onto the markets by echoing previous Fed comments warning of an increase in interest rates as soon an the June 15th open market committee meeting. This verbal onslaught has resulted in Fed funds futures rates predicting a 28% chance for a June hike, and a 56% chance for a July hike.
Some analysts feel that the market isn’t taking into account that the June meeting is 8 days before the Brexit vote in Britain, and the July meeting takes right in the middle of the Democratic Presidential convention. These two events are likely to stay the Fed’s hand, until the next meeting in September. The market puts the odds of a September hike at 64%.
Stocks opened higher, as the first revision to first quarter GDP was revised upward from an initial 0.5% to 0.8%. Wall St. is shaking off the recent tight correlation between stocks and oil, moving higher this morning while oil prices fall.
Oil speculators cashed in ahead of June’s OPEC meeting, as prices breached the $50 market for the first time since last autumn. Prices today are dealing with bearish news, as Canadian oil sands operations are set to resume. Oil also has some bullish news, as Nigerian militants blow up another pipeline, taking more production offline.Other global news is affecting the oil market as well. A nationwide strike against oil refineries in France has spread to the nation’s nuclear power plants. Workers are protesting the government slightly easing laws that gave workers extravagant perks and job protections that some say is the main cause of France’s inability to compete in global markets. This strike is contributing to a worsening oil glut and lower crude prices in Europe.
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