Hawaii Six O - Gary Wagner
A Solid Performance for Gold This Week
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Although gold’s weekly range was absolutely dwarfed by the highs and lows achieved during trading last week, the end result was very solid and respectable gains. Considering that gold prices opened at roughly $1400 per ounce at the beginning of this week, and as of 4:30 PM EDT is trading at $1416.30; the precious yellow metal was able to continue the upside rally that has been in play.
Last week gold prices closed about a dollar below its opening price on Monday, however it was the expanded range that really caught the attention of market participants. In the first week of July gold began to trade at $1385 per ounce, and traded to a high of approximately $1440. That is a $55 range between the high and the low that resulted in no real gain or loss on the week. This week gold traded to a low of $1387, and a high of $1429 before settling in the midrange of the trading week.
The fundamentals behind this rally which began roughly in May are still absolutely in play and continue to guide market participants and fuel their bullish market sentiment. The fact of the matter is that since May when gold was trading at $1269 it has moved roughly $173 when it reached this year’s apex at $1442.
These gains have been the net result of multiple factors and events creating a perfect storm scenario based upon geopolitical events and economic uncertainty. The current trade war between the United States and China has shown to be deeply interwoven within the global economic fabric itself. It is this single event that has had a complex and far-reaching domino effect moving to every financial market.
This trade dispute has gotten no closer to an ultimate resolution, and in fact continues to grow as the chasm between the ideologies of these two superpowers continued to move farther away from each other. However now they are beginning to affect not only the economies of the United States and China, but now data suggests that there is been a global economic slowdown due to this conflict.
Recent actions by the Federal Reserve as well as other global Central Banks have pivoted their monetary policies which were either tightening or normalizing interest rates and money liquidity, back to a much more dovish stance of being accommodative and setting up a series of interest rate cuts similar to what they did following the recession of 2008.
The monetary policy of quantitative easing seems to have a very similar affect and result as it did during the financial crisis of 2008. Equities are moving to record highs, and gold prices are experiencing a major rally and running in tandem with stocks. These dramatic rises in equities and gold are occurring in conjunction with falling U.S. treasury yields which have dropped sharply.
Powell’s Statement Highly Supportive of Monetary Easing
In a testimony this week before Congress Powell said that, “ongoing trade fights with China and other countries have contributed to slower growth at home and abroad and pose more risk to the US economy.” He also elaborated when he said that the Fed, for its part, is prepared to “act as appropriate to sustain the expansion.”
According to analysts and economists Powell restated the current Federal Reserve’s stance, using a phrase that economists say points strongly to a rate cut at the bank’s next meeting at the end of July.
A statement released in relationship to the current Fed monetary policy said, “At our January, March, and May meetings, we stated that we would be patient as we determined what future adjustments to the federal funds rate might be appropriate to support our goals of maximum employment and price stability.”
During the May FOMC meeting the statement said that they were mindful of the ongoing crosscurrents from global growth and trade, but there was tentative evidence that these crosscurrents were moderating.
The next big event will occur at the end of this month when the FOMC meeting commences and concludes with an expected interest rate cut.
The fact that Chairman Powell once again reiterated a strong potential for rate cuts and a more dovish monetary policy will not only have the opportunity to revitalize and re-energize our economic expansion and continue the rally in U.S. equities, but more importantly be a catalyst taking gold prices substantially higher.
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Wishing you as always, good trading,Wishing you as always, good trading, Gary S. Wagner