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Gold, Currencies Fall As Dollar Gains

December 20th, 2016 by

Gold prices, as well as foreign currencies and any commodity priced in dollar terms, are lower as the US dollar hits fresh 14-year highs on Tuesday morning. Gold has been pushed down to new 10-month lows, while silver is recording new 8-month lows.

The pound, euro, and yen are all down versus the dollar, while stocks on Wall St and crude oil prices opened higher.

Gold, Currencies

Spot gold was down more than $10 an ounce to test support at $1,125/oz earlier this morning, before rising marginally. Spot silver dropped to $15.52 an ounce before recovering to about $15.85/oz.

The dollar DXY index hit fresh 14-year highs this morning before easing slightly. The greenback gained against all of its major rivals as the economic outlook in the US continues to outstrip its competitors. The Chinese yuan fell to 6.95 per dollar, the euro was nearing $1.03, and the pound sterling slid to just $1.23.

In central bank news, the Bank of Japan (BoJ) stood pat on interest rates today, keeping the overnight rate at a negative 0.1%. Central bank chief Haruhiko Kuroda reaffirmed the bank’s policy of controlling the yield curve on government bonds by intervening to keep the yield on the 10-year note around 0%. At the same time, the BoJ revised its economic outlook upward.

The big news as far as currencies are concerned was Kuroda dismissing concerns about the yen, calling it a case of dollar strength and not yen weakness. This sent the yen falling against the dollar.

Stocks, Bonds

The Dow Jones Industrial Average is continuing to flirt with the magic number of 20,000, coming within 12 points of breaking that milestone for the first time ever during early trading. Equities in the US were all in positive territory by about 0.4% on Tuesday.

stock-exchange

While stocks and the USD have both been particularly strong, the Treasury market has gone the opposite direction. In fact, government bonds have been selling off around the globe. The pace of the selloff has been fastest for Treasuries, however. The spread between the 10-year T-note (almost 2.60%) and Germany’s 10-year bund (about 0.3%) has grown to its widest gap in more than 25 years. This is despite considerable flight into bunds following the terror attack on Berlin. In terms of global interest rates, the 3-month Libor rate has hit 1% for the first time since the depths of the financial crisis.

As far as the housing market in the US is concerned, 30-year mortgage rates stand at 4.38%, the highest since 2014. This means that adjustable-rate mortgages (ARMs) will begin adjusting upward.

Futures for both WTI crude and Brent crude (for January and February delivery, respectively) rose this morning. Speculative longs on crude oil are currently at their highest level since July of 2014. However, Nymex natural gas fell more than 4%.

 

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