The Daily Market Report: Gold Retreats Below $1200 as Sharp Yen Drop Lifts Dollar


26-May (USAGOLD) — Gold begins the holiday shortened week on the defensive, dropping back below the $1200 level. The losses are being widely attributed to dollar stength, which is reality is more a story of yen weakness.

On Friday, Fed chair Yellen left the door open for a rate hike this year. Yellen said it would be “appropriate at some point this year to take the initial step to raise the federal-funds rate target and begin the process of normalizing monetary policy.”

I don’t know why that statement is any more believable than all the previous ones. After all, this is the same Fed that initially set rate hike expectations for March. When the data failed to support a spring lift-off, expectations were shifted to June. More recently, they’ve been pushed out to September, or possibly December.

Arguably the Fed is still closer to normalizing policy than the BoJ or ECB. In fact, the BoJ has been pedal to the metal on its QQE policy. They’ve been debasing the yen far more aggressively than the Fed, or even the ECB. Minutes from the 30-Apr BoJ MPM come out tonight.

The BoJ is winning the current battle that is raging within the broader currency the war; as evidenced by the yen’s plunge to nearly 8-year lows against the dollar. The yen continues to trade well off its recent high against the yen.

Well over half of the recent losses in the dollar index have already been retraced. That’s not going to help improve U.S. exports, or the trade deficit; which will in turn perpetuate growth risks. Watch FedSpeak from doves Williams and Kocherlakota this week, to stress data dependence. Richmond Fed hawk Jeffrey Lacker also speak this week.

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