Another morning of losses for the U.S. dollar helped briefly lift gold prices to a two-year high on Thursday.
Spot gold approached $1,362/oz in early trading, surpassing its 2017 high of $1,357.
However, gold quickly fell back to unchanged at $1,357/oz. The silver price took a breather, trading 0.25% lower (-5¢) at $17.50/oz after a huge rally during Wednesday’s session.
Platinum added another 0.3% to about $1,017/oz yet palladium sank 1.1% back to $1,092/oz. This is the smallest spread between the two metals since 2018 began.
Euro Strength Exacerbates Dollar Weakness
The slump for the USD worsened on Thursday thanks to a fresh surge for the euro. The dollar continued to tumble on the DXY index, where the euro is the most heavily weighted competing currency.
This morning, the index registered at just 88.5, down 0.8%. Meanwhile, the euro rallied to nearly $1.25.
Comments about the advantages of a weaker dollar by Treasury Secretary Mnuchin weren’t the only factor driving the dollar lower (and gold higher). The European Central Bank also got in on the act.
The ECB left interest rates unchanged at its January meeting held this morning. In fact, the central bank’s president, Mario Draghi, reiterated that ECB stimulus measures should remain in place in order to encourage healthier inflation.
Under most circumstances, this is a fairly dovish position. It was not enough to stem the tide of the rising euro, however. Draghi opined—correctly—that the strength of the euro leaves inflation expectations uncertain.
It has the opposite effect of what Draghi and the ECB want, actually: A stronger currency is a deflationary development.
The divergent paths of the euro and dollar of late has increased volatility in forex trading. The Japanese yen was up 0.2% to ¥109.0 while Britain’s pound sterling gained almost 0.4% to $1.43.
A weaker dollar is also causing bonds to sell off. The 10-year T-note yield rose to 2.66% this morning. Several commentators are now ringing the alarm bells that bonds are already in a bear market.
Jobless Claims, Quarterly Earnings, and Trade
More economic news came from the Department of Labor on Thursday. Weekly jobless claims rose to 233,000 new filings. The rise was less than expected, though.
Some experts believe that the unemployment rate could fall as low as 3.5% by the end of the year. It is currently at 4.1%.
Between the unemployment data and encouraging fourth-quarter earnings, Wall Street was set to rally to new all-time highs today.
Some of the major firms that will report earnings are American Airlines, computer chipmaker Intel, and construction equipment manufacturer Catepillar.
Meanwhile, shares were mostly flat in Europe but traded sharply lower in Asia overnight.
Commodities also benefited from the softer dollar. Crude oil prices hit a three-year high: WTI crude was up 1% to cross above $66 per barrel and Brent crude advanced to $71/bbl.
Aside from pursuing more protectionist policies with regard to U.S. trade with Asia, the Trump administration is also facing a possible trade war with Canada. Negotiations to restructure the unpopular NAFTA treaty are ongoing.
President Trump is currently traveling to the Swiss Alps for the World Economic Forum in Davos. He is expected to give a speech at the gathering tomorrow.
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.