Weekly summary 20110529 - Gold strengthens. Equity drops

It had been a long and volatile week. Fortunately, most financial markets ended the day on a positive note.

At closing, Friday May 27^th, Global equity markets closed higher for the day with the exception of China, Japan and Argentina.

The US markets closed up following

·         Stronger than expected University of Michigan consumer sentiment data and

·         Encouraging comments from the Group of Eight (G8) about the strength of the global economy.

However, the Dow and S&P closed lower for the fourth week! The performance of other major indices in Asia, Europe, Latin America, MENA and Emerging markets were also not spared.

As for commodities and currencies,

·         Crude Oil, Gold and Silver closed higher for the day and week

·         The Aussie, Kiwi and the Loonie were much stronger.

The question for today is that when most markets end up on a positive note, where is the weakness?

As US is currently the world’s largest economy, its economy and reserve currency status affects the whole world. Global markets would normally take cues on how the US market performs. When the US market sneezes, other major indices will soon catch the cold.

Similarly, the strength or weakness of the US dollar will affect the prices of commodities – agriculture, mining, currencies and dollar denominated instruments and vice-versa.

Hence, there is no prize for guessing that the weakness lies in the US dollar. The US dollar index closed the week much lower, near 74.90. It had peaked earlier this week on Monday near 76.53.

However, the point I am trying to emphasize here is not where the market closes for the day or week but that while investing, I would certainly take note the strength of the US economy, the economic data and the US dollar.

While the US dollar is currently still the reserve currency, its strength and weakness can determine the prices of commodities, crude oil, precious metals and some currencies. Hence, it would also determine the demand and supply. Please note the daily chart of the US dollar index and its technical representation.

Notes: The Group of Eight normally referred to as G8 comprises the Group of Six (France, Germany, Italy, Japan, UK and the US) with the inclusion of Canada and Russia.

Memorial Day falls the following Monday where all US markets will be closed. Click here for the following week's weekly summary.