Gold Jumps on Dollar Weakness

U.S. 10-year Treasury bonds fell today, on dollar
weakness and inflationary concerns. The Fed minutes released this week
showed an agreement between Fed members that rate hikes could become necessary
to control inflation. The hawkish outlook helped to send bonds lower, a
sign that investors took the minutes as a positive for the economy. Dollar
weakness also helped to push bonds lower, as foreign investors shy away from
U.S. consumer protectionism (evidenced in economic sanctions against China).
Right now, there looks to be little chance of a rate cut before the year is out;
inflationary pressures could force the Fed to raise rates sooner than later.

The yen fell to new record lows against the euro
today, and also fell against the dollar, on speculation that a G-7 meeting today
will not focus on yen weakness. The yen has been making new lows against
the euro, on widespread European economic strength and growth. The euro
also gained against the dollar, pushing against 2-year highs. Despite
keeping rates unchanged at the last ECB session this week, the ECB President did
comment that interest rates in Europe will be higher by the end of the year, a
sign of the central bank’s commitment to keep raising rates. The
international currency market favors positive-growth, inflationary economies,
which puts Europe in the best light. Recent U.S. reports, and the Fed
minutes, point to an inflationary economy in the U.S., which is keeping the
dollar up against the yen.

Crude was fractionally changed, giving up gains
from early in the day, after a significant rally yesterday. Traders are
betting that with summer close at hand, U.S. consumption of energy will go up as
usual. Crude shot up about 3 weeks ago after a group of British sailors
were captured by Iran, on speculation that a full-fledged conflict could lead to
Iran withdrawing its supplies from the global market. Now it seems as
though traders are looking ahead to anticipate a spike in demand over the
summer. Natural gas futures fell about 1% on comfortable inventory levels.

Gold rose to near 1-year highs today, on
continued dollar weakness against the euro, and speculation that the dollar has
more downside to go. Gold usually moves inversely to the dollar and with
energy, and it was dollar action that dominated today’s gold trading.
Traders bought gold as a hedge against dollar weakness. Copper rose about
1% on speculation of coming supply disruptions from major suppliers around the

Grains traded mixed today. Soybeans were
fractionally changed, corn rose nearly 3% and wheat rose about 4.6%.


Producer prices
rose 1%, beating analyst expectations.

Consumer Confidence dropped to an 8-month low based on the University of
Michigan sentiment index.

John Lee

Associate Editor