Dollar Falls – A False Dawn for Gold & Silver Prices?

Yesterday we saw the US dollar value fall against the basket of 6 rival currencies with the dollar index being down some 0.09% lower at 97.05. Listeners to our channel will be very aware that the dollar index closed last Friday at 97.75 and so it has fallen 0.7 since then.

At the time of producing this podcast the index is 97.24 recovering slightly, but why did we see such a fall and what effect is it having on gold and silver prices?

Well, yesterday the Federal Reserve Chair Jerome Powell alluded to the possibility of an interest rate cut in the face of economic risks, including the global trade war. He commented briefly during a speech on monetary policy issues that the U.S. central bank will respond “as appropriate” to trade – and other – headwinds.

He added that the Fed was “closely monitoring the implications” of the trade dispute that has, since the Fed’s last meeting, disrupted global bond and equity markets and posed risks to U.S. and world economic growth.

Now these comments followed a fall in the dollar value on Monday to a five-month low against the Japanese yen and so of course forex traders were already on edge before Powell spoke.

These concerns were further exasperated when figures on Monday showed that national factory activity dropped to a 31-month low in May.

On Tuesday, the Commerce Department reported that new orders for U.S.-made goods fell in April and shipments dropped by the most in two years, indicating continued weakness in manufacturing that could undercut the broader economy.

In itself, to be fair, these moves are not that dramatic, but when these concerns follow President Trump’s surprise tariff threat on Mexican imports, removal of import favoured status for India and ever increasing tensions with China who are retaliating against further tariff increases, it is not surprising that markets, traders, investors and bankers, not to mention businesses are indeed concerned.

In US dollar terms gold is up some $26 at $1331 since market opening this week and silver is up 29 cents and currently stands at $14.87.

We knew something was up, even without seeing the economic data, because all of the pumpers have been out in force now calling for $100 or $150 silver, with gold about to take off to the moon and of course the imminent dollar collapse.

Let’s put all of this into perspective. The dollar index is still higher than it was in January and gold is standing at the same level it peaked to in February and silver prices have only rebounded to the same level they were at the beginning of May.

Now all of this is against a backdrop of trade tensions and threats around the globe, potential military crisis with Iran and North Korea, not to mention with China; Congress on the verge of potentially deciding whether to attempt to impeach the President or not, and economic figures showing that the world is most definitely in a phase of global growth slowdown – and the best so far gold and silver can rise – is to levels achieved just a few months ago and the dollar index is still holding relatively firm.

Now of course, we have more economic data due out later this week with trade deficit figures due tomorrow and non-farm payrolls on Friday, which could make a difference, and may indeed see a further firming of gold prices at least. Dollar collapse; No, Fed interest rate cut – perhaps but later in the year; also, stocks are broadly up a little today – and this is when the news is virtually all bad.

That said, at least it appears that President Trump has had a successful visit to the UK and if these tariff threats are resolved, do not be surprised to see the dollar rise again and equity markets have a further blip upwards. Of course, if they are not, then we still do not foresee prices going to the moon but at least holding firm with a small upward bias?

Friday of course will tell us more – either way.