Gold, the dollar, and stocks all heard something to like about Fed Chair Janet Yellen's prepared remarks for today's testimony before Congress on the financial health of the US economy. Stocks were happy that she acknowledged the effects of the economic slowdown in China, while forex traders long on the dollar were happy that she noted uncertainties surrounding China's commitment to an open currency.
Gold bulls seemed pleased at the litany of concerns facing global markets, and the possibility of them bringing down the economic recovery in the US. Her remarks put an end to overnight profit taking, sending spot gold back over the $1,190 mark.
Treasuries are the only asset class that doesn't seem to be celebrating, taking a cautious approach to Yellen's words. (oh, and oil of course, which even Yellen can't talk up.)
Gold is off the lows seen just before the New York open this morning, after some fully-expected profit-taking emerged. Gold has seen a $100 jump in prices in just four weeks. Chinese markets are closed all week for the lunar new year, removing a substantial amount of liquidity in Asian markets.
Gold futures eked out a win Tuesday to see a 6% gain over the last five days. Gold futures have recorded a 12% rally so far this year. Such impressive gains during a time when the Chinese are absent from the markets shows that this year's gold rally isn't driven purely by Asian demand.
Spot gold closed basically flat yesterday at $1,188.80, losing only 20 cents for the day after hitting an intraday high of $1,198.85. Technical levels today should see first support at $1,184, then $1,178 if that fails. First resistance should be encountered at the overnight low of $1,194. A break above that level puts the psychologically important $1,200 mark back into play once again.
In other gold news, the Chinese government this week reported that it had added just shy of 16 metric tons (580,000 troy ounces) of gold to its reserves in January. This comes at the same time that China has heavily tapped its forex reserves for the second month in a row to support the Yuan and domestic stock markets. Beijing's foreign reserves are now at the lowest level since 2012.
Yellen's tacit admission that present global economic conditions formed a headwind against a second rate hike in March helped calm the stock market, as did her expression that the Fed needed to wait and see if the current turmoil in US markets is temporary volatility following the initial rate hike, or is something long-lasting.
Her remarks also encouraged analysts that the Fed is aligning its view on rate hikes with that of the markets. Until recently, the Fed seemed fixed on four rate hikes in 2016, whereas the markets anticipated anywhere from two rate hikes to none at all this year.
Gold dipped during Yellen's live testimony before Congress to successfully test today's projected support level of $1,184, before bouncing back.
A fly in Yellen's ointment this morning is the dollar. She made a point of noting that a strong dollar was weighing on the US economy by reducing exports, but instead of taking the hint and falling, the greenback continued its rally.
How Does This Affect Rate Hike Forecasts?
Shortly before the transcripts of Yellen's speech before Congress were released this morning, the Fed fund futures rate was giving a 0% chance of a March rate hike. Immediately after the transcripts hit the wire, the odds jumped to 6%, then settled down to around 2%
Yellen apparently is trying to take rate hike fears out of the equation for the stock market, as higher rates will mean tighter credit, and more companies on the edge of the bubble going bankrupt. Wall St. can now focus more on earnings reports and other macroeconomic factors.
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