Gold prices are seeing a substantial correction this morning, as better than expected economic news in the US has the dollar rallying to a 7-week high. This dollar rally is being fueled by expectations that an improving US economy will allow the Fed to raise benchmark interest rates at least once this year. The CME Group FedWatch tool now indicates a 24% chance of a September rate hike, with odds growing to 47% in December. The Atlanta Federal Reserve’s GDPnow forecast has second quarter GDP estimates at 2.4%.
The dollar’s gains are being limited by a pound sterling that has been boosted by the best UK employment data since 1971. However, it should be noted that this is “pre-Brexit” data. The euro is lagging behind the stronger US dollar and British pound. Wall St. opened higher, with the Dow looking to extend its current rally to nine sessions, and its streak of new highs to seven. The S&P 500 broke its winning streak, as disappointing earnings from Netflix provided an excuse to bank some profits.
August gold futures inched higher Tuesday, gaining $3.00 to settle at $1,332.30. September silver futures fell 6.8 cents to settle at $20.01.
Spot gold also inched higher Tuesday, closing at $1.331.70 for a gain of $3.20. Spot silver prices missed the boat however, losing 15 cents to close at $19.88. A stronger dollar Tuesday kept any advances in precious metals muted.
As mentioned above, the Dow recorded its eight day of gains, and its sixth day in a row of new all-time highs. Markets are skittish over this week’s earnings reports, as exemplified by disappointing growth numbers by Netflix kept the S&P 500 and Nasdaq in the red all day. The Dow was nearly in the same boat, but broke above unchanged in late trading.
Stocks are rallying in part on dreams of money printing at central banks in Europe and Japan. the European Central Bank’s policy meeting tomorrow will be closely watched, as Brexit volatility is hoped to force them to increase stimulus measures. In Japan, Prime Minister Shinzo Abe has vowed to drastically increase government spending to match the easy monetary policy by the Bank of Japan.
Extra volatility is expected today in oil futures, as the August West Texas Intermediate contract expires at the close of trading today. Traders will have to settle their August contracts or roll them over. Both Brent and WTI are down more than 1% in morning trading. Brent managed to pare losses on Tuesday, falling only 0.6% to $6.66 a barrel. WTI extended losses, to close 1.3% lower, at $44.65. This was the lowest settlement for WTI crude since May 9th. The official US crude stockpile numbers are due from the Energy Information Administration are due this morning at 10:30 am. The American Petroleum Institute yesterday said that stockpile fell by 2.3 million barrels, but there has been some large discrepancies between their numbers and the EIA numbers recently.
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