DMR–Gold tumbles then rights itself, emerging countries, Fed minutes, China negotiations weigh on sentiment

Gold tumbled in European trading but righted itself early in the U.S. session to trade at $1294.50 and get to even on the day.  It got as low $1289 in overnight trade. Emerging country debt and currency problems, the Federal Reserve’s release of minutes for its May meeting and the tenuous state of negotiations with China are all weighing on gold market sentiment this morning.

– MarketWatch reports that the Fed might “float new ideas” in the May minutes, but the main feature could very well break down to the differing views as to the future among board members.

– The China negotiation might very well have just gone into a protracted stall judging from the president’s most recent remarks.

– As for the emerging countries’ currency and debt problems, the similarities to the 1997-1998 Asian contagion are striking. We have seen estimates that as many as thirteen different countries are experiencing significant difficulty.

Today could end up being “one of those days” for financial markets including gold. . . . . . .

Quote of the Day
“A strong USD corresponds to generally hawkish Fed in an environment where the US is recovering fast while the rest of the globe is still too slow or recessionary, or that the Fed is pushing rates above the neutral and causing excessive tightening of financial conditions and potentially triggering recession. A weak USD path, on the other hand, can materialize either as an inflation or credit (twin deficits) risk, a troubling possibility to which there is no adequate policy response.” – Aleksander Kocic, Deutsche Bank

Chart of the Day

Chart note: Though not in lock step, gold and oil tend have traveled in the same direction since 2008.  At present, oil is outpacing gold, but given their historical relationship, an argument could be made that the yellow metal has some catching up to do.  There are those who might read in this chart the opposite – that oil is due for a correction to the downside. Some analysts though, like Union Bank of Switzerland and Bank of America, see its recent rise as fundamentally sound with a $100 price per barrel in the cards.

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