The Daily Market Report: Gold Surges Back Above $1200, Retracing Friday’s Losses and Then Some

27-Apr (USAGOLD) — Gold snapped back above the $1200 level in early New York trading on Monday, just like we suspected it might in Friday’s closing commentary. The yellow retraced all of Friday’s losses, and then some, and is presently trading up more than $20 on the day.

The Fed starts their two-day meeting tomorrow, so the first tier of resistance 1209.04/1210.75 may prove difficult to breach initially. The Fed is widely expected to hold steady on policy and will play the rate hike possibility close to the vest, particularly with the first peak at Q1 GDP coming out on Wednesday.

Consensus for GDP is running right around 1%, which is pretty anemic given the extraordinary efforts made in recent years to stimulate growth and generate inflation. If there is a significant miss on the downside, a 2015 rate hike will be considered by many to be off the table. That would put yields and the dollar under pressure, likely to the benefit of gold.

Over the weekend, finance minister Yanis Varoufakis was apparently benched, following what was widely categorized as a “debacle” in Latvia on Friday. The other finance ministers roundly castigated Varoufakis as someone way over his depth in trying to work out a deal that might save Greece from default and possible ejection from the eurozone.

This doesn’t get Greece any closer to a deal, but the markets were someone heartened by the turn of events. Time is truly running short and with every tick of the clock the likelihood that Greece will come up with a list of reforms its willing to undertake — and will appease creditors — becomes increasingly unlikely.

A Bloomberg article this morning notes strong demand for TIPS as a possible harbinger for higher inflation:

Instead of worrying about how the Fed’s zeal to roll back its policy of holding interest rates near zero might choke off growth, bond traders are now confident the central bank will let the economy regain the momentum it lost with oil’s plunge before raising borrowing costs. — Bloomberg

During the recent deflationary period, gold has actually proven to be quite resilient. If inflation returns, gold could truly shine once again, given that it is widely perceived to be the classic hedge against rising prices.

James Evans of Brown Brothers Harriman & Co. said, “The foundation is there for higher inflation.” If that is true, one could reasonably argue that gold has build a strong foundation centered on the $1200 zone from which to stage the next rally.