Record highs in the stock market, 6-year highs in US consumer sentiment, the longest streak of +100K NFP in 12 years, 6-year lows in unemployment rate, 2-year highs in bond yields. With these dynamics at play, the Fed ought to scale down monthly asset purchases, by at least $10 bn this year (even if it is symbolic) to account for the change in fundamentals over the last 6 months (and not the last 6 weeks). Failure to do so, is serious lapse of credibility to Bernanke and doves at the Fed.
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Gold traders must keep an eye on bond market expectations for interest rate hikes. Yes rate hikes. The graphs below show rate hike probabilities for July (while) and September (green), with the latter currently 68% probability for a 25-bp rate hike. See how gold fell and DXY rose when the probability graphs rose. The weaker than expected US jobs report on Thursday triggered a temporary rally in gold and decline in rate hike probabilities, but markets are now repricing probabilities. DXY remains above the 100-week MA, while gold is unable to regain the 55-week MA.
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Latest Hot-Chart - Jun 29
DXY Pattern Redux
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