With the U.S. Dollar Index tumbling to 98, here is what is pushing the gold and silver markets higher today.
May 16 (King World News) – Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: The euro heavy US dollar index is but a smidgeon from giving back the entire Trump election rally. It’s back to where it was on November 9th, the day after, which compares with the close of 97.86 the day of the election. While I saw a news headline today blaming the new news on Trump’s new soap opera story, I’ll stick to the data and the shifts in monetary policy instead as the main drivers…
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Reflecting the post election excitement in France, the German ZEW index which measures German investor confidence in the German economy rose to 20.6 from 19.5. While that was below the estimate of 22, it still is at the highest level since August 2015 while the Current Situation component rose to the best level in almost 6 years. Also of note, the ZEW survey for the entire euro area was higher by almost 10 pts to the highest since August 2015. The President of ZEW said:
“The latest figures on the GDP confirm that the German economy is in good shape. ZEW indicators have been pointing to this trend for some time. The prospects for the eurozone as a whole are gradually improving, further strengthening the economic environment for German exports.”
While this data is euro supportive, the euro was rallying all morning to above $1.10 even before it came out. I’ve been bullish on the euro all year and remain so. I also still like gold which stood at $1284 on November 9th.
Another factor that has helped the euro is the region’s trade surplus and that widened to a record high in March on a non seasonally adjusted basis. See chart (below).
Europe’s Trade Surplus Hits All-Time Record!
The record dates back to when the euro was created in 1999. Goods exports were up by 13% y/o/y with imports higher by 14%. The trade surplus with the US was 30.6b for Q1 to the nonsensical dismay of the US Administration.
With the better outlook in the eurozone it of course begs the question as to what (Mario) Draghi Capital Management will announce in June with respect to the fate of his policy extremism. Governing Council member Jan Smets spoke in an interview today with MNI and said “the next reassessment will happen with the new staff projections in June.” This doesn’t mean that we’ll get new color on when the next taper happens but Smets did say “We will not wait until New Year’s Eve to tell the markets what will happen on the first of January” with respect to their QE program. I’ll repeat again that the Fed and ECB are the biggest headwind to the entire apple cart as they try to thread the needle of policy removal. European sovereign bonds are mixed.
King World News note: What Boockvar is discussing is extremely important for the gold market because a cycle of a stronger euro and a weaker dollar will mean much higher gold prices medium- to long-term. This would also create some very important breakouts for the gold market over time, such as pushing the price back above $1,400, a level not seen in many years. For what it’s worth, this will also be extremely bullish for the the share prices of the high-quality mining companies.
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