So, after a month of volatility following the $US 13.80 leap on May 18, Gold has re-entered the doldrums this week. The spot future price rose $US 1.10 this week, its trading range over the week being exactly that same $US 1.10.
Pretty well everything else has been quiet this week too. The U.S. Dollar has "stabilised" about a point below the 15-year high it set on June 11. U.S. markets have also "stabilised" after a poor week last week. The Nasdaq managed to close back above the 2000 level on June 22. The Dow's trading range for the week was an almost non-existent 13 points. Treasury bond yields are still falling across the maturity range, with 3-month, 6-month and 1-year paper yielding less than 3.50%. If the Fed cuts by 0.50% again on June 26-27 - the Fed Funds will be 3.50%.
Of course, everyone - both inside and outside the U.S. - is waiting to see what the Fed will do next week. On June 21, the European Central Bank (ECB) stood pat. No one expects the Fed to do likewise, with expectation growing, especially on Wall Street, that the cut will again be 0.50% rather than the 0.25% most were expecting two weeks ago.
On the charts, you can see the drop off in volume and the lessening in price movements easily. But the best illustration of Gold's return to immobility against the $US is shown by the fact that the Point and Figure chart didn't move at all this week. And the Gold lease rates, are falling slowly but steadily, as a direct reflection of the fall in the LIBOR. Like everyone else, the Bank of England is anticipating lower U.S. rates next week.
The outlook for the immediate future will be determined by next Wednesday, June 27, when the FOMC announces their decision to the world. One thing to watch carefully in this regard is any reaction to the recent DEMANDS by U.S. manufacturers that the Bush Administration renounce their "strong Dollar policy".
Of course, there is no "strong Dollar policy", foreigners continue to recieve huge amounts of Dollars and continue to recycle them back to the U.S., mostly into U.S. debt paper. The last time that screams were heard about a "strong Dollar" was late last year. At that time, the sufferers were U.S. tech companies who were finding it impossible to compete in Europe. This time, the sufferers are ALL U.S. exporters who are finding it impossible to compete almost anywhere.
Last year, there was concerted Central Bank intervention, ostensibly to "prop up the Euro". We cannot see the same thing happening now, especially after the Fed has done everything possible to rein in the Dollar by flooding the system with new "liquidity" and cutting interest rates by 250 basis points since the year began - with more to come next week.
But even without the Central Banks getting involved, there will inevitably come a point where the rate cutting frenzy in the U.S. will begin to impact negatively on the Dollar. And since big swings in currencies, especially strong currencies, usually take markets by surprise, it would not surprise us if the Dollar reacts negatively, perhaps VERY negatively, to another Fed rate cut.
The ONLY thing that Gold is lacking right now is an uptrend in terms of the U.S. Dollar - it is trending up in terms of everything else. Right now, the U.S. cannot afford either a "strong" Dollar or a "weak" one. U.S. companies can't export with a strong Dollar, foreigners will not look kindly to seeing their U.S. investments lose value if the Dollar weakens. The stage is set for some potential fireworks after the FOMC meeting. Stay tuned.