Technically Speaking

Weekly Analysis: Outside Markets

Todd Hultman
By  Todd Hultman , DTN Grains Analyst
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With the U.S. dollar index near its highest prices in a year and the Federal Reserve sticking to its plan for gradual rate hikes in 2018, spot gold futures fell to its lowest close in a year on Tuesday, another bearish sign for commodity prices, in general. (DTN ProphetX chart)

Gold: Spot gold prices fell $12.40 to $1,227.30 Tuesday, the lowest close in a year as a growing U.S. economy continues to influence the Federal Reserve toward a gradual plan of higher interest rates ahead. That was the testimony of Federal Reserve Chairman Powell to the Senate Banking Committee on Tuesday, a plan which enhanced gold bears and caused bulls to retreat in mid-July. The trend in gold actually turned lower on May 1 after leaving behind a lower high in early April. As bearish as that was, Tuesday's new one-year low is another blow to bullish hopes for gold and has bearish implications for commodities, in general.

U.S. Dollar Index: The U.S. Dollar Index has been trending higher since late April and is now challenging its highest prices in a year, helped by expectations for more rate hikes from the Federal Reserve. Unlike gold, the dollar has not broken its one-year barrier yet, but mark July 27 on the calendar when the U.S. Commerce Department releases its first estimate of second-quarter GDP. White House officials have suggested growth will be up and if so, that should bring further support to the dollar. A new one-year high, if it happens, will be a bearish factor for commodity prices, in general.

U.S. 10 Year T-Note Yields: For roughly nine months, 10-year T-note yields have been working higher, supported by consistent growth in the U.S. economy with no fallout seen from trade disputes yet. At 2.86%, yields have seen a sideways pause the last five months, but may be getting ready to resume their upward trend. On Tuesday, Fed Chairman Powell reaffirmed his commitment to gradually raising rates in 2018 and, as mentioned above, the report of second quarter GDP has potential to increase the case for rates to go higher. U.S. trade policy disputes are the biggest challenge to the outlook for higher economic growth and higher interest rates and have hurt the ag economy, but so far, the broader economy has not shown much negative impact.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at Todd.Hultman@dtn.com

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