The Daily Market Report: Gold Firm as Dollar Rally Falters

USAGOLD/Peter Grant/10-16-17

Gold is consolidating above the $1300 level, buoyed by persistent political and geopolitcal concerns. However, equally persistent strength in shares is driving risk appetite, which is limiting the upside for the yellow metal.

The near-term uptrend in the dollar that began early in September seems to have lost momentum ahead of resistance marked by the mid-August highs at 94.14. The dollar index rolled over early this month, but additional downside follow-through is needed to return confidence to longer-term downtrend.

If that happens, it would likely push gold through the next important tier of resistance at 1308.80/1313.62. That would return considerable credence to the uptrend that has dominated this year.

North Korea has renewed its threat to launch missiles toward Guam in response to the latest joint U.S./South Korea military exercises. As the saber rattling and drilling continues, the risk remains that one side or the other will misinterpret some action, leading to a shooting-war.

Spain continues to press Catalonia for clarification of exactly what happened last week. If they did indeed declare independence — or if they fail to clarify one way or another by Thursday — Spain may exert direct rule over the currently autonomous region. What kind of force might be used to accomplish that remains to be seen.

U.S. data remains uneven, but the market still seems inclined to ignore continuing signs of weak inflation. That’s because the Fed continues to indicate that they remain optimistic that inflation will eventually pick-up and therefore another rate hike is warranted this year.

Rate hike probability for December remains near 90%, although some FOMC members expressed last week a desire to remain on hold until there are actual signs of higher inflation, rather than mere Phillips curve driven expectations.

If the inflation data were sufficient to warrant a pause in the tightening cycle in September, nothing — beyond the hurricane related jump in energy prices — has really changed in the past month. The situation could certainly change ahead of that last FOMC meeting, but at this point the certainty of the market doesn’t make sense.

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