The Daily Market Report: Gold Stabilizes Despite Further Dollar Gains

27-May (USAGOLD) — Gold is holding ground, despite further dollar gains. The yellow metal eked out a new 2-week low at 1183.30 overseas, while the dollar index jumped to a 5-week high.

We have repeatedly made the case that gold has displayed remarkable resilience in the face of recent dollar gains. When the dollar index hit a 12-year high 3-months ago at 100.39, gold was still trading comfortably above its 5-year low at 1131.15 from November 2014.

The recent rebound in the dollar is largely attributable to renewed weakness in the yen, which hit an 8-year low against the dollar today. Today it was revealed in the BoJ minutes from the 30-Apr MPM that members remain very concerned about the failure of their aggressive QQE program to stoke inflation.

Such a situation pretty much dictates that the BoJ print even more yen. The yen is dropping precipitously in reaction to heightened expectations of further easing. The push toward the 8-year lows commenced yesterday as the the yen broke down out of the recent consolidative range.

Even thought Fed chair Yellen said on Friday that a rate hike this year would be “appropriate,” the renewed dollar strength increases growth risks and in fact reduces the likelihood that lift-off will come this year. I’d be surprised if the Fed didn’t counter the dollar gains with some dovish FedSpeak.

Q1 GDP is already expected to be revised to a negative number. The Atlanta Fed’s GDPNow model, which was pretty much spot-on with its Q1 forecast, is suggesting growth in Q2 will be a weak 0.8%. That’s well below consensus, which is running closer to 3%.

Greece PM Tsipras is quoted today as saying his country is close to deal with creditors, and that deal will “relocate burdens”. That last part should strike fear in the hearts of the rest of Europe, particularly the Germans. The EC was quick to deny that a deal was close; and in fact, Bloomberg quoted sources this morning that said Greece was “nowhere close” to a deal.

I think Tsipras is probably looking to slow outflows from the Greek banking system, lest their be nothing left when he initiates capital controls. Greece is expected to run out of money early in June, potentially resulting in a sovereign default.