Gold rises as US interest rates stay down(Read article summary)
Gold rises, along with the euro and Australian dollar, after the S&P downgraded its outlook on the US. Gold rises above $1,500 and silver is trading above $44.
Arko Datta / Reuters / File
Front and center this morning we have a currency and commodity rally going on for the ages! But firstâ€¦ Today is also my long time, good friend, and the Big Bossâ€™ birthday! Yesâ€¦ Happy Birthday, Frank Trotter! YAHOO!
OKâ€¦ The currency and commodity rally for the agesâ€¦ Itâ€™s as if the overnight markets guys and gals had the light bulb go on over their collective heads, and inside the light bulb was this thoughtâ€¦ â€śInterest rates around the world are going up, but staying down in the US and S&P just downgraded the USâ€™s outlook to negative, so why are we holding dollars?â€ťâ€¦ The rest is history as they say, with the euro (EUR) rallying to 1.45, the Aussie dollar (AUD) to $1.0650, and gold at $1,505â€¦
Itâ€™s pretty amazing once the markets figure out something, itâ€™s like theyâ€™re playing poker, and decide to â€śgo all inâ€ťâ€¦ For all the time before they finally figure something out, they hem and haw around giving this reason or that reason for supporting a sinking assetâ€¦ In this case itâ€™s the dollarâ€¦ Look, I donâ€™t want this to happen, but, the writing has been on the wall for some time now, and I said it would happen, so there you go!
We also had Swedenâ€™s Riksbank adding fuel to the fire thatâ€™s burning under the pole that the dollar is strapped to this morning, by hiking their internal interest rate 25 basis points (1/4%) bringing their internal rate to 1.75%â€¦ I expect the Riksbank to hike rates quite frequently this year, pushing their rate to 2.5% in the next yearâ€¦ The Swedish krona (SEK) received a ton of love after the rate hike, and has finally moved back to its level of 2008â€¦ You know, the levels we saw before the financial meltdown, the first of many things that have come along to rescue the dollar, but eventually allow it to be tied to the pole againâ€¦
As I said above, gold is trading above $1,500 this morningâ€¦and that move is responsible for helping the Aussie dollar reach a 29-year high at $1.0650! And donâ€™t forget silver! Yes, silver is trading above $44 this morning! And once again, itâ€™s important to remember that those who think that because gold and silver donâ€™t pay interest, higher rates around the world would squash their bull market rallies, are wrongâ€¦ Or at least to me they areâ€¦ Instead, higher rates around the world squash the dollar, and gold and silver are being used as â€śdollar alternativesâ€ťâ€¦
Another thing throwing gas (literally) on the fire burning beneath the pole that the dollar is tied to, is the jump in the price of oil yesterday and overnightâ€¦ Yesterday, the price of oil had slipped to $106.10, but this morning, itâ€™s back to $109.80! And donâ€™t think for a minute that investors arenâ€™t using oil investments as dollar alternatives too!
With the rise in the price of oil, the â€śpetrol currenciesâ€ť of: Canada, Norway, UK, and even Mexico (with their depleting oil reserves) get an extra boost against the dollar. Soâ€¦ itâ€™s an all-out rout on the dollar this morningâ€¦ Itâ€™s like the overnight markets ambushed the dollar, captured it, and are now holding it captive!
The Canadian dollar/loonie (CAD) got an extra boost after their March inflation rate jumped to 3.3%! Looks like the Bank of Canada (BOC) is going to have to come back to the rate hike table sooner than they had previously thought! I really think that the BOC needs to get their heads on straight here, since they had backed away from the rate hike table, not wanting to attract attention to the loonie, as they didnâ€™t want the currency to get too strongâ€¦ But I would think that rather than not wanting to see the currency appreciate, that the BOC needs to accept a stronger loonie, and let it do some of the work of holding down inflation pressuresâ€¦ Look, if oil is going to remain above $100, and food prices continue to be more than â€śtransitoryâ€ť (as our Big Ben likes to say), inflation is going to remain a problem for the BOC and the Canadian peopleâ€¦ So, go ahead, and accept a stronger loonie, BOC, youâ€™ll be happy you did!
I guess that old kiss of death that I put on things from time to time, didnâ€™t last too long for the New Zealand dollar/kiwi (NZD)â€¦ Yesterday, I was disappointed to see kiwi slip after talking about its steady rise in the past monthâ€¦ But today, kiwi has touched 80-centsâ€¦ The last time kiwi was above 80-cents was three years ago! Kiwiâ€™s high was reached in February of 2008, topping out at 0.8214â€¦ Soâ€¦ If kiwi is to return to its previous high, it still has a ways to go, eh?
The fact that the earnings season has been pretty good so far is weighing on the dollar, this morning, which should be good for the USâ€¦ But markets are taking it as reason to rally versus the dollar, on the â€śboost to risk sentimentâ€ťâ€¦ Soâ€¦ In that vein, today, after the market closes, Apple will announce first quarter earningsâ€¦ If the â€śrisk sentimentâ€ť is to remain, and continue to put pressure on the dollar, Appleâ€™s earnings will need to be strong.
Portugal and Spain were able to auction bonds this morning without major problems, which is a good sign for them, and for the euro. So, watch for this, folksâ€¦ Today or tomorrow weâ€™ll see the media refocus on restructuring Greek debt, to take the heat off the dollarâ€¦
Yes, I donâ€™t like being so cynical, but what can I do? I see it every time, and itâ€™s so blatant! Of course, my beautiful bride would probably tell you otherwiseâ€¦ HA! But think about all this for a minuteâ€¦ I just call them the way I see them, and if thatâ€™s being a Smart-A** or cynical, so be it!
Not that too many people noticed itâ€¦ But I left three zeros off my reporting of the National Debt yesterdayâ€¦ But we all know itâ€™s $14+ TRIILLION at this point, and going up every second. But I do agree that when someone sees $14 trillion, they get the picture better if they see it as $14,000,000,000,000 â€¦ It makes one think about it a little more, rather than just saying $14 trillion, and letting it roll easily off the tongueâ€¦
As I look at the currency screens, all the currencies that should be in green are green, and all the currencies that should be in red are in red, except for oneâ€¦ The Japanese yen (JPY), which had been in rally mode for the past couple of weeks, just doesnâ€™t mix well when the â€śrisk onâ€ť is in full bloom like it is todayâ€¦
Then there was thisâ€¦ From channelnewsasia.comâ€¦
Some analysts see this as a move by China to reduce its reliance on the greenback as a reserve currency.
Thio Chin Loo, Senior FX and Interest Rate Strategist with BNP Paribas, said: â€śSo with the volatility of the US asset market over the last two years, it has probably caused some pain to the external balance sheets and therefore the need to want to diversify FX reserve holdings with the US dollar.â€ť
Chinaâ€™s central bank may also grant the Monetary Authority of Singapore a qualifying foreign institutional investor status which allows the MAS to invest in Chinese financial products on the mainland.
The stories on China and their move toward a freely exchangeable currency are becoming more frequent, arenâ€™t they? I think China is moving more quickly than they had previously planned, because of the things going on in the US.
To recapâ€¦ Besides it being Frank Trotterâ€™s birthday, the other big news for today is that weâ€™ve had a currency and commodity rally versus the dollar for the ages! The euro is over $1.45, and gold is over $1,500! Rate differentials, S&P negative outlooks, and pretty strong earnings from US companies are all ganging up on the dollar this morningâ€¦ Oil has rallied $3 overnight, and the Riksbank hiked rates 25 basis points.
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