The Daily Market Report: Gold Remains Defensive on Firm Dollar, Higher Stocks

25-May (USAGOLD) — Gold extended modestly lower in earlier trading before stabilizing. The dollar remains firm amid ongoing Fed rate hike speculation, which is keeping the yellow metal under pressure.

While the debate rages on about whether the Fed will-or-wont pull the trigger this summer, the ECB is signalling again that it needs more support from governments in the form of fiscal reforms and closer coordination between countries within the EU. “Monetary policy cannot be a substitute for economic policy coordination or the lack of reforms,” said Bank of France Governor Villeroy de Galhau.

Monsieur de Galhau went on to add his voice to others that have suggested monetary policy has reached its limit. “Monetary stimulus is reaching its limits and if it is maintained for too long, it has negative side effects such as financial imbalances and misallocations in the broader economy,” said de Galhau. While there is technically no limit to the assets the central bank might buy or how deep into negative territory they might take rates, the efficacy of these policies are pretty clearly on the decline.

Of course we all know how elected officials feel about pushing painful fiscal reforms on their constituents. Their fear of not being reelected overwhelms their common sense; and as long as the central bank is willing to continue doing the heavy lifting, they seem to find comfort in their inaction.

One interesting exception has been Greece, where PM Tsipras and his Syriza party passed new austerity measures this week. You may recall that Tsipras and Syriza won election on an anti-austerity platform. “European leaders get the message tonight that Greece meets its obligations,” said Alexis Tsipras. As for his “obligations” to the voters of Greece . . . meh . . .

Here’s the payoff though: The move freed up another €10.3 bln tranche in bailout funds for Greece. On top of that, reports are circulating that the ECB will once again start accepting Greek paper as collateral for central bank loans.

Everyone’s a winner! With the exception of the Greek people: Who were sold a bill-of-goods in the last election. Are forced to endure more austerity. Find their country ever-deeper in debt.

It is astonishing that nearly a decade after the global debt crisis morphed into the global financial crisis and the Great Recession, countries are still trying to borrow their way back to prosperity. Last year, The McKinsey and Global Institute reported that global debt had increased by $57 trillion since 2007. To my knowledge that figure has not been updated, but we can be reasonably assured it’s higher today than when that story came out in February of 2015.

That dear reader is about as good a reason as there is for getting some gold. The correction in the yellow metal over the last several weeks may be a great opportunity to make that initial purchase, or add to your existing holdings.