The apparent unraveling of the dollar's relentless strength is having effects across the global markets this morning. Naturally, the precious metals were one of the main beneficiaries of the softer Greenback.
Spot gold rose to a 3-and-½-month high above $1,155/oz this morning, more than 1% higher. Silver also surged about 20¢ per ounce (+1.25%) to $14.95/oz. Platinum gained over 2% to break above $900/oz, while palladium was unchanged at $510/oz.
The main driver for these gains was certainly the weaker dollar. The USD lost another 0.8% on the DXY this morning to settle at 96.5. This followed a sharp 1.7% loss for the dollar index yesterday.
Effects on the Market
Commodities in general received a much-needed boost by the dwindling dollar, particularly crude oil. Although both WTI and Brent crude were each trading lower on Thursday morning, the two benchmarks have recovered from their recent lows, holding above $32/bbl and $34.50/bbl, respectively.
Many traders are "buying the rumor" of slowing production from oil exporters—which would lead to higher prices on lower supply—even though this doesn't change the fact that storage of crude continues to approach over-capacity.
The currency markets responded to the falling dollar as one would expect: the euro gained better than 1% on Thursday morning to touch its own 3-and-½-month high at $1.12; the yen added 1% to trade near 117¥ per dollar, matching a one-year high notched last month. The British pound also neared a one-month high against the USD at $1.46.
Another factor weighing on Thursday's action was the rise in weekly jobless claims. New filings rose to 285,000 last week as employers continue to lay off excess workers who were added during the holiday season. Other data showed that productivity in the U.S. slumped 3% during the fourth quarter of 2015.
Central Banks Pull Back
Some are attributing the negative action on the markets to dovish comments made by New York Fed President William Dudley this week. Indeed, the CME Group places the odds of a rate hike in March at just 8%, down from 14%. While "Fed-speak" certainly has an influence on trader sentiment and behavior, the Treasury market has already been indicating that virtually nobody expects the Federal Reserve to hike interest rates at all in 2016.
The 10-year T-note yield has fallen to 1.86%, a far cry from just a few weeks ago when the expectation was for the Fed to raise interest rates 4 times throughout the year. In some sense, the dollar is merely coming into line with what the bond markets have already been indicating.
Following the Fed, the Bank of England chose to hold its interest rates steady. The lone rate-hike advocate on the central bank's Monetary Policy Committee has reversed his position as the BoE voted unanimously in favor of not raising rates.
Technical Outlook for Gold
Importantly, the gold price has moved above its 200-day moving of $1,130/oz. This is generally taken as a strong bullish signal. The April gold futures contract saw its highest settlement in 15 weeks, since October.
Support is now seen at $1,145/oz and then $1,139/oz, the overnight low for spot gold. Resistance levels have basically been blown out of the water thanks to the yellow metal's recent surge, but gold is seeing resistance at $1,156/oz this morning. The next key resistance level is seen at $1,160/oz, the 78.6% Fibonacci retracement level.
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