Gold Wobbles Against The Dollar But Stronger Against Other Currencies

After Janet Yellen’s speech at Harvard on Friday afternoon, the question of interest rate increases was once again, how soon and how large. For most of April and May, most investors had come to the conclusion that the likelihood of a rate increase in 2016 was very slim. With the release of hawkish minutes from the April meeting followed by a bevy of Federal speakers all taking a much more aggressive approach flipped market expectations upside down. One Fed member said a rate increase in June was “live” others advocated for several increases before the end of the year. You can guess what the immediate market action was, everyone could, gold tumbled and the dollar soared.  Gold futures tumbled over the weekend to trade at 1212.45 losing almost $8 to cap a week of losses in each session.  Gold continued to ease on Monday as traders returned to the markets. Gold is trading in the Asian session at 1205.95 after touching a low in at 1203. Although Monday will be a quiet day with the US and the UK on holiday. Silver and platinum took hits this week also, but silver was supported by stronger industrial demands to trade at 16.24. Platinum was down 17.50 on the weekend to trade at 978.30.
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Gold slid one percent to a three-month low on Friday and another 1% this morning, extending losses after Federal Reserve Chair Janet Yellen indicated the U.S. central bank could raise interest rates within months if the economy continues to improve, boosting the dollar. The US dollar gained to reach 95.73 its highest level is several months.

“The economy is continuing to improve …growth looks to be picking up,” Yellen said in remarks in Boston. “If that continues and if the labor market continues to improve, and I expect those things to occur …in the coming months such a move would be appropriate.”  The remarks lifted the U.S. dollar index to a two-month high. “You couldn’t really say it was uber hawkish, but it keeps the door open for a July hike, and as far as gold is concerned, that means that there was a bit of a higher cost of carry in U.S. dollar terms,” said Bart Melic, head of commodity strategy for TD Securities.

Gold closed week down 3.5 percent, the biggest fall since early November. Gold is looking very different than it did at the beginning of this month. Along with platinum, palladium and silver, it is heading for the biggest monthly loss since last year as investors anticipate higher borrowing costs in the US.

Holdings in gold-backed exchange-traded funds added 1.5 tonnes to 1,844.9 tonnes as of Thursday, data compiled by Bloomberg show.

In looking ahead, Kitco News offers the following forecasts via their Wall Street vs. Main Street survey:

“This week, Kitco’s online survey received 790 votes. A total of 499 respondents, or 51%, said they were bullish in the week ahead, while 278, or 35%, were bearish. The neutral votes totaled 112, or 14%.

Meanwhile, 20 analysts and traders took part in a survey for market professionals. The largest chunk — nine, or 45% — looked for prices to ease next week. Seven participants, or 35%, called for a rise, while four, or 20%, were neutral.”

Investors around the world are losing confidence in Chinese yuan, Saudi rials, South African rand, Russian rubles, and a long list of other emerging market currencies. Investor preferences are shifting toward gold. This accounts for gold’s out performance of the rest of the commodity complex when measured in dollars.

What is interesting is that when the price of gold is measured not in dollars but in rubles, yuan, or rials, the percentage price increase in gold increases as currencies decline against the dollar.