Gold edged higher to begin the week, establishing a 4-week high at 1258.79. With the dollar still on the defensive near 13-month lows, the yellow metal is likely to remain underpinned.
The greenback is under pressure amid expectations that the Fed is not going to hike rates in September. The market is hoping to glean further evidence of this pause when the Fed announces policy on Wednesday this week.
Political uncertainty is adding additional weight to the dollar. Turnover — and speculation about potential turnover — within the Trump administration and investigations of the President’s inner-circle have dimmed hopes that Mr. Trump’s economic agenda will be advanced anytime soon.
With progress on the fiscal side hamstrung, additional pressure falls on the Fed and monetary policy. At this point, one more rate hike this year (probably in December) remains about a 50/50 proposition. However, if inflation and growth data continue to come in weak, that probability is likely to recede in the weeks and months ahead.
Our first look at Q2 GDP comes this Friday. Median expectations are +2.5%, but we’ve seen projections erode steadily throughout the quarter. A miss on Friday would pretty much erase any lingering doubts about a September pause and raise considerable doubts about December.
Such a miss would apply additional pressure on the dollar, which would in turn buoy gold and likely push it through the next tiers of resistance. Those levels are 1260.96 (retracement), 1267.67 (trendline), 1278.63 (retracement).