Gold Consolidates in Face of Firmer Dollar

Gold is maintaining a consolidative tone, despite a firmer greenback. The dollar index jumped to a 4-month high, driven by a softer euro, better than expected housing starts and WSJ Fedwatcher Jon Hilsenrath's suggestion that a rate hike may be seen as soon as September.

As for the latter, the market remains skeptical: Fed funds futures show the probability of 25 bps rate hike in September has risen this week, it's still only 18%. There also remains some doubt that the Fed will hike ahead of the election in November. Odds of a December hike remain below 40%.

While some are viewing markets as having stabilized post-Brexit vote, German and eurozone economic sentiment plummeted in July.

German ZEW economic sentiment plunged to -6.8, a 4-year low. That was well below expectations of 10.0, versus 19.2 in June. The current situation index fell to 49.8, also well below expectations.

Economic sentiment in the broader eurozone saw the biggest monthly drop ever recorded, falling from 20.2 in June, to -14.7 in July. That doesn't feel very stabilized to me.

There is an expectation that the ECB will maintain a very dovish tone when they announce policy later this week. Bloomberg is reporting that the central bank will be "scrounging" for German debt to buy within months. While there may be some effort to broaden the scope of QE operations in the months ahead as the quality asset pool dries up, steady policy is likely on Thursday.

Additionally, the IMF once again cut its global growth forecast, citing Brexit specifically. The global economy is now expected to expand at a 3.1% rate this year and 3.4% in 2017. The IMF projections have been ratcheting lower since last year.

All in all, one might argue that the U.S. remains the best looking horse at the glue factory, but we are still at the glue factory. Continue to view setbacks in the gold market as buying opportunities.