The Daily Market Report: Gold Recovers From Friday’s Retreat

USAGOLD/Peter Grant/08-21-17

Gold has retraced more than half of the pullback from Friday’s high just above $1300. Renewed geopolitical tensions, along with a weaker dollar, are buoying the yellow metal.

As U.S. and South Korean joint military exercises commence, the North Korean’s are rattling the saber once again. They seem worried that the war games may be used as cover for a preemptive strike and warned of a “merciless strike” in retaliation. This exercise continues through the end of the month, so I imagine tensions will remain elevated until then.

Political uncertainty remains elevated as well. Treasury Secretary Mnuchin was urged by some Yale classmates to resign over the weekend. He seems inclined to stay, but this would be devastating for tax reform and a resolution of the debt ceiling situation.

Mnuchin has already warned that the extraordinary measures enacted by Treasury to stay below the debt ceiling will have run their course at the end of September. That could lead to a potential default on some payments.

Under normal circumstances I would have every confidence that Congress would raise or suspend the debt ceiling; with of course the requisite eleventh-hour drama. After all, they have always done so in the past. This time might be different though. This from Bloomberg:

Trump is becoming increasingly isolated from the Republican establishment and the stability of his economic agenda, including even the simple matter of the U.S. government’s solvency, isn’t being taken for granted. — Bloomberg

It will be interesting to get a read on the earnestness of Congress once they return from the August recess and where they focus their priorities. If the uncertainty continues to build in the weeks ahead, gold should continue to act accordingly.

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