Falling interest rates (and a weaker dollar) also explain the recent surge into gold. Renewed interest in gold usually happens when investors are looking for alternatives to stocks and bonds (as well as global currencies). Which suggests that they may be losing confidence in the global economy. And reducing exposure to riskier smaller stocks; while prospecting in safer havens like gold.

Chart above shows a ratio of gold divided by the Russell 2000 having the strongest upturn in three years.

However that move in GOLD might have run out. See below.

GOLD proceeded to 1440 on thin volumes and a few central banks buying. Prices reacting to old news is a classic trap move and we suspect to be the case in GOLD.

US GDP

The US growth is solid and is still trending higher. The FED has been rightfully holding onto its hike path because the growth has not shown any sign of weakness. This when combined with decade low unemployment rate could lead to overheating. The US unemployment rate stood at 3.6 percent in May 2019, unchanged from the previous month’s 49-year low and matching market expectations. The number of unemployed increased by 64 thousand to 5.9 million while employment rose by 113 thousand to 156.8 million. Unemployment Rate in the United States averaged 5.75 percent from 1948 until 2019, reaching an all time high of 10.80 percent in November of 1982 and a record low of 2.50 percent in May of 1953.

Nonfarm payrolls in the US increased by 75 thousand in May 2019, following a downwardly revised 224 thousand rise in April and missing market expectations of 185 thousand. Employment continued to trend up in professional and business services and in health care. Monthly job gains have averaged 164 thousand in 2019, compared with an average gain of 223 thousand per month in 2018. Non Farm Payrolls in the United States averaged 125.70 Thousand from 1939 until 2019, reaching an all time high of 1118 Thousand in September of 1983 and a record low of -1959 Thousand in September of 1945.

The US annual inflation rate fell to 1.8 percent in May 2019 from a five-month high in the previous month and just below forecasts of 1.9 percent. The core inflation rate, which excludes volatile items such as food and energy, edged down to 2.0 percent, also below market consensus of 2.1 percent. The inflation rate is hovering near FED objective of 2% and we dont see FED cutting rates in 2019 any further than a 25 bps unless a clear fall in inflation.

The University of Michigan's consumer sentiment for the US dropped to 97.9 in June 2019 from 100.0 in the previous month, slightly missing market consensus of 98.0, a preliminary estimate showed. Consumer expectations deteriorated sharply due to concerns about tariffs as well as slowing gains in employment. Consumer Confidence in the United States averaged 86.55 Index Points from 1952 until 2019, reaching an all time high of 111.40 Index Points in January of 2000 and a record low of 51.70 Index Points in May of 1980.

Dollar Index

Dollar index is at support of oversold levels of 95.9. If the support holds, dollar could start next leg of rally to 103.

USDCAD sitting at support

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