Gold Falls on Anticipated Dollar Strength

By John Lee

U.S. 10-year Treasury bonds fell today, on speculation that the Fed will not lower interest rates until at least October. Last week's Fed announcement reemphasized the Fed's primary focus of monitoring inflation. Although the Fed admitted that the economy could begin slowing, inflation remains the key focus for the U.S. central bank, causing traders to pare bets that the Fed would be cutting rates any time soon. The price of 2-year notes fell to the lowest levels in 4 weeks, further signaling that most traders are not looking for a cut.

The euro grinded higher against the U.S. dollar and Japanese yen today. Last week, the ECB held borrowing rates, but promised continued "vigilance" on inflation. Traders took that as a hint that futures hikes are around the corner, and now the European currency is pushing towards new records against the yen. The euro neared matching record highs against the yen, rebounding from Friday's lows. The dollar strengthened fractionally over the yen. The Canadian dollar resumed its advance over the U.S. dollar; the price of Canadian commodity exports like oil and gold are rising, pushing the Canadian currency higher.

Crude oil futures were basically flat today, as investors speculated on summer demand and refinery capacities. Crude oil rose gradually last week, as traders began to up bets that this summer will be one of high demand. Low gasoline inventories have traders worried that refineries will not be able to handle any serious spike in demand or dent in supplies; most investors are watching for crude to go higher this summer. Natural gas futures rose about 0.5% on similar summer-related demand issues.

Gold prices fell about 0.3% today, on speculation that the euro is topping against the dollar. Gold usually trades inversely to the dollar and with oil; despite euro gains over the dollar today, traders bet that the euro would not be able to sustain its advance. Traders sold gold in favor of anticipated dollar strength. Copper futures fell about 3% today, on speculation that demand from China will dry up as the year goes on.

Grains traded mixed today. Corn fell 1.7%, wheat gained 0.8% and soybeans rose 1.2%.

Economic News
No major news to report today for the U.S.