Gold surged to new 11-month high of 1348.47 in early New York trading as the dollar index tumbled to new 33-month lows. Political and geopolitical tensions continue to offer support as well.
Weakness in the dollar is being primarily driven by euro strength, despite a rather dovish vibe from the European Central Bank. The ECB held steady on policy as was widely expected. Discussion of tapering specifics won’t occur until October, but it was reiterated that QE could in fact be extended if warranted. The central bank also expressed concerns about euro strength and further trimmed inflation expectations for 2018 and 2019.
Again, rather dovish, but the market seems to think that the ECB is more hawkish than the Fed. At some point the strong euro is going to start weighing on the prospects for recovery and Draghi and company will have to start jawboning it down.
Relief associated with the 3-month kick of the can on the U.S. debt ceiling seems to have been short-lived. While focus can now shift to a budget, nothing has been resolved and we’ll be right back in the same mess in about 12-weeks with a potential default looming.