Gold has traded between $1,209 and $1,217 so far today…as of 9:30 am Pacific, bullion is up $10 an ounce at $1,215 as it tries to end the month by snapping a 9-session losing skid that brought the metal to a 3-and-a-half month low yesterday…Silver, which is headed for its biggest monthly drop since September, is up 4 cents at $16.00…Copper is down a penny at $2.13…Crude Oil has jumped 50 cents to $49.83 while the U.S. Dollar Index has gained one-tenth of a point to 95.73…
Hedge funds and money managers fled for the exits on mass in the Gold market as speculative net long positions were significantly reduced in the week ending May 24, according to the latest data from the Commodity Futures Trading Commission…no big surprise…higher interest rate expectations for June and July convinced short-term speculative traders to take profits and reduce net long positions to levels not seen in nearly 2 months…analysts at Commerzbank said that November saw similar trading activity (that proved to be a great month to accumulate Gold) as net longs were sharply reduced over a 2-week period immediately ahead of a Fed rate hike…we all know what happened after the Fed made its move – the dollar tanked and Gold started taking off to the upside…
The trading behavior of the Venture, a reliable leading indicator, tells us that Gold’s downside potential from current levels is very limited…exceptionally strong support for the metal exists between the rising 200-day moving average (SMA) in the mid $1,160’s to $1,200 which was a key breakout point early this year…the Venture has enjoyed a much better month than Gold, Silver and Copper, an encouraging divergence that suggests what we’ve seen over the last couple of weeks in those markets is merely a healthy correction that investors should not fear…
The “Swan Chart” Of Risks
Analysts at RBC Economics have come out stating that despite the “surprisingly hawkish” minutes from the Fed’s May meeting, raising rates in June is “nearly impossible”…meanwhile, risks to the world economy remain to the downside and include sharply weaker global growth and a sudden change to expectations regarding the Fed’s interest rate path, according to Societe Generale which issued a “Swan Chart” of risks today…the French bank, in its quarterly economic outlook, also said there was still a 30% chance of an economic hard landing for China…
The Fed – Between A Rock And A Hard Place
Just one of the Fed’s problems, in our view, is that whenever it turns up the rhetoric regarding a potential rate hike, the U.S. dollar takes off – and the high value of the greenback over the last couple of years has unquestionably created deflationary pressures in addition to negatively impacting U.S. economic growth…those facts, in turn, make it much more difficult for the Fed to actually implement a rate hike cycle…in other words, the Fed is strangely allowing itself to get caught up in a negative feedback loop that ultimately restrains its ability to advance the process of rate normalization…
Important Week For U.S. Economic Data
This week’s deluge of U.S. economic data started this morning…a bright spot is U.S. consumer spending which recorded its biggest increase in more than 6 years in April, though consumer confidence abated somewhat…meanwhile, a preferred Fed inflation gauge increased from the previous month’s reading…overall, sort of a mixed bag for the Fed…
The Commerce Department reported that consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged 1% last month as households bought automobiles and a range of other goods and services…however, the Conference Board came out with data that showed consumers were feeling less optimistic for the 2nd month in a row as the Consumer Confidence Index fell to 92.6 in May…economists expected the index to rise to 96 in May, up from April’s revised reading of 94.7…
Meanwhile, the personal consumption expenditure (PCE) price index, excluding the volatile food and energy components, rose 0.2% last month after edging up 0.1% in March…in the 12 months through April, the core PCE rose 1.6% (still below the central bank’s 2% target, however) after a similar year-over-year increase in March…
Another reading just in – the Chicago Purchasing Managers Index continues to weaken, falling into contraction territory, with a reading of 49.3 this month, down from a 50.3 reading seen in April…this is the lowest level for this index since February and the 6th time it has been in contraction over the past 12 months…
Additional key information on the U.S. economy will come from the manufacturing and non-manufacturing ISM surveys scheduled for tomorrow and Friday, respectively…also on tap Friday, of course, is the all-important non-farm payrolls report…for the Fed to gather the courage to raise rates again, payrolls growth would likely have to come close to the 3-month average of 200,000 while some wage inflation would also have to be evident…
In today’s Morning Musings…
1. Canasil Resources (CLZ, TSX-V) & Orex Minerals (REX, TSX-V) take off after more outstanding drill results from their Sandra Escobar Silver discovery in Mexico…
2. What Richmont Mines (RIC, TSX) tells us about the direction of Gold and Gold stocks…
3. Important chart updates – TSX Gold Index, CRB Index…
4. 10-cent Lithium play ready for a breakout…
5. Coming hot technology play on the CSE…
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