By Dave Kansas
The so-called Double Fear trade has emerged in the final hours of trading yesterday.
The Double Fear trade consists of the unusual combination of rising gold prices and a strengthening dollar. In most cases, gold (and other commodities) tends to have an inverse relationship to the dollar. If the dollar is strong, it requires fewer bucks to buy the same amount of stuff.
Early in today’s session, gold prices pushed higher, and the dollar, as measured by the U.S. Dollar Index, remained in negative territory. Gold has gained ground as the EU/IMF/ECB troika fumbles about for another Greek fix. A fix looks closer, but a solution still seems far away.
Gold finished the day with a gain of $6.50 to 1542/oz, bringing it to within 0.9% of its record nominal close of $1556.70/oz reached on May 2. Silver prices fell 1.6%. ”Gold demand right now is more associated with safe-haven-type buying,” Charles Nedoss, senior market strategist at Olympus Futures, told Tatyana Shumsky of Dow Jones Newswires.
Meantime, as gold held onto its gains, the dollar began to rebound as investors sought other forms of safety as stock prices sank. The U.S. dollar index crested into positive territory around 2:45 p.m. and has remained there since.
Underpinning the Double Fear trade: the yield on the benchmark U.S. Treasury bond keeps falling. Late in the day, it is down to 2.957%, its lowest level since late last year. Bond yields tend to decline during times of economic pessimism. Got plenty of that yesterday.