This morning, after the U.S. Labor Department announced the disappointing non-farm payroll report gold started to surge higher. The catalyst for the rise in gold is the anticipation and speculation of another quantitative easing program by the Federal Reserve. Today, the SPDR Gold Shares (NYSE:GLD) are trading higher by more than $5.00 from the pre-market low to $155.49 a share.
Nearly every trading session when the U.S. Dollar Index futures (DX-M2) are stronger before the opening bell at the New York Stock Exchange (NYSE) they will sell off after the open. Yesterday, and today are perfect examples of this phenomenon. Obviously, we should all know by now that a weaker dollar will ultimately help to inflate the stock markets higher.
This morning, the precious metals are trading sharply higher. The catalyst for the advance in gold, and silver is the weaker U.S. Dollar Index, and the pledge by central banks to keep easy money available. Last night, the People Bank of China (Chinese central bank) cut reserve requirements for lenders. This is just another example of easy credit.
The SPDR Gold Shares (NYSEARCA:GLD) and the iShares Silver Trust (NYSEARCA:SLV) are both trading slightly lower this morning. These two precious metals will usually trade inverse to the U.S. Dollar, therefore, traders should follow the dollar closely. Short term traders can watch for intra-day support on the GLD around the $167.00, and $166.00 levels.
Nearly everyday since December the media reports how good things are getting in the economy. This report was better than expected, that report is better than expected and everyone is working again. While the economy might be healing in some way investors must ask themselves why the Federal Reserve is continuing to promote low rates until late 2014.
This afternoon, the major stock market indexes have rallied once again after more news out of the European Union. This time around the European Union leaders have released a statement that they may run two separate rescue funds. Who really knows what this news actually means? If you are a trader then you should know that the European news caused the U.S. Dollar Index futures (DX Z1) to decline.
At this time, gold and the major stock market indexes are synonymous. When gold rallies higher the major stock market indexes seem to rally higher as well. Gold is signaling to investors that inflation is being created by the central banks. As we all know by now, when there is inflation the major stock market indexes will react and trade higher.
Every trader in the world follows gold and they should. When gold rallies, or bounces higher it will usually signal that inflation is being pumped into the stock market. The opposite is true when gold declines and sells off, it will signal that the stock market indexes are deflating and will trade lower.
This afternoon, the FOMC will announce there interest rate policy and make a statement about the economy. Most traders and investors are eagerly awaiting the for the central banks action. At this time, many trader and investors are expecting the Federal Reserve to implement its Operation Twist program. Other investors are expecting the Fed to announce another quantitative easing program.