The Daily Market Report: Gold Firms as Dollar Continues Its Slide


USAGOLD/Peter Grant/05-22-17

Gold remains generally well bid, with last week’s high at 1265.01 within striking distance. Above that — given the favorable technical posture — the high for the year at 1295.03 would be looking pretty attractive.

Political and geopolitical tensions are helping to keep the yellow metal underpinned. Continued pressure on the dollar is helping to buoy gold as well. The dollar index has extended to new 6-month lows toda, pushed by euro gains.

In answering a question as to why Germany continued to maintain a high trade surplus, Angela Merkel said that “the euro is too weak,” suggesting that ECB policy was too accommodative. With more hawkish rumblings emanating from the central bank this year, Merkel’s comment may have lent some credence to calls for some movement toward policy normalization later this year.

If Chancellor Merkel thinks the euro is too weak, and President Trump thinks the dollar is too strong, it seems like there may be a path of least resistance for that currency pair. That would bode well for gold, which is priced in dollars.

Uncertainty about U.S. growth prospects could put further pressure on the greenback if the Fed adopts a more dovish tact later in the year. Right now, markets remain fairly convinced that another 25 bps rate hike is coming in June. Fed funds futures put the probability back at 78%, but chances of an additional 25 bps in September at just 24.5%.

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