Gold is consolidating above the $1300 level, showing good resilience in the face of a stronger dollar today. Political and geopolitical risks continue underpin the yellow metal.
The dollar index is up more than 1% from yesterday’s 32-month low. Today’s better than expected revision to Q2 GDP is helping to buoy the greenback, but another rate hike this year remains a long-shot. September remains off the table and even with the GDP beat, Fed funds futures put the probability of a December hike at just 36.4%.
Given the broader fundamental picture, the bounce in the dollar is likely to prove short-lived. If corrective upticks are met with further selling interest, given the breach of a key support level yesterday, a significant downside extension into the mid-80s is possible.
That would push gold to more new highs as well. The yellow metal continues to garner additional support from ongoing saber-rattling by the U.S. and North Korea.
On the heels of this week’s missile shot over Japan, the DPKR state-run new agency declared it a “a meaningful prelude to containing Guam.” The suggestion being that the launching of a missile toward Guam is still very much on the table. President Trump tweeted this morning that “talking is not the answer” to dealing with North Korea.
The President pledged early in the month to respond with “fire and fury” if North Korea threatened the U.S. One has to imagine that firing missiles toward Guam would be a very direct threat, warranting some type of response.
Domestically, the President is going to try and reinvigorate his campaign pledge for tax cuts and tax reform. With Congress returning next week after the summer recess, their agenda is going to be pretty packed with Texas obviously deserving of immediate attention. Our policymakers will have their work cut out for them, coming up with a budget before the end of the fiscal year and addressing the debt ceiling before the Treasury runs out of money at the end of September.