After a week of depressed trading for gold, with downward movement that was larger than normal due to low seasonal trading volumes, the yellow metal was mostly flat on Monday morning. Gold prices were again testing their lows of $1,315/oz, a level that has proven to be strong support as spot gold bounced back to $1,320/oz.
The spot silver price was about 5¢ lower (-0.25%), trading around $18.70/oz.
Today is a bank holiday in the U.K., meaning that the London Gold Market is closed for trading. This has resulted in fairly thin volumes once again.
Much of the attention in the markets, from stocks to bonds to commodities to currencies, is focused on the supposedly hawkish tone of remarks made at the Federal Reserve Board’s symposium held last week at Jackson Hole.
Diverging Central Banks
The wording of Fed Chair Janet Yellen’s prepared remarks on Friday morning at Jackson Hole, WY was considered decidedly “hawkish”: it outlined a continued—albeit cautious—optimism for the trending health and progress of the U.S. economy.
The full gamut of expected trading outcomes of a more aggressive stance by the central bank came to fruition, all of which centered on interest rates possibly being raised sooner than expected. Strangely enough, however, one could just as easily interpret Yellen’s words, and the general tone of the meeting, as a dovish signal. The speech and the mood it created was careful to emphasize that 1) the central banks extreme policy tools are working; and 2) the Fed won’t hesitate to use these tools (particularly asset purchases like QE as opposed to fiddling with the federal funds rate) if the economy shows that it needs further accommodation. In other words, no departure from its current dovish support of Wall St. This side of the story seemed to be lost on the media and markets, but is typical of “Fedspeak.”
The Bank of Japan nonetheless seems to be striking the opposite chord with the market’s ears. While speaking at the same Jackson Hole gathering, BOJ Governor Kuroda reassured the audience that aggressive stimulus measures would be undertaken if needed. Japan has already experimented with the largest quantitative easing program in the world.
Affect on Markets
The expectation of higher short-term interest rates in the wake of Jackson Hole meant that stocks were trending slightly lower and the dollar staged a small rally. Equities in the U.S. remarkably continued to tread just above positive territory on Friday and Monday, nonetheless. The dollar was 25 basis points higher on the DXY index to 95.8, its highest in 2-and-½ weeks.
Overall, however, the global currency markets have been a home run for traders. So far this year, the strategy of playing the forex (foreign exchange) market has been a “can’t miss,” with the Deutsche Bank Carry Trade Index reaching its highest in over a year earlier this summer. The simple “carry” trade of borrowing expensive currencies and putting them into high-yield assets is on pace for its biggest annual return since 2012. One might fairly observe that forex is in a bubble.
In commodities, crude oil prices finally fell as the bullish traders seem to have capitulated. Crude prices were nearly 2% lower this morning below $47 per barrel.
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.