The Daily Market Report: ‘Risk-off’ Pushes Gold Higher


USAGOLD/Peter Grant/10-19-17

Heightened geopolitical tensions in Europe have prompted a rebound in gold, as the situation in Spain pushes the debate about the next Fed chair to the back-burner. U.S. yields and the dollar have dropped, providing support for the yellow metal.

For now, gold may be considered consolidative as investors await the weekend and Spain’s invocation of article 155, which would revoke Catalonia’s autonomy. Perhaps more important, will be the reaction of separatists and whether violence will erupt. A rise above Fibonacci/chart resistance at 1308.80/1313.62 is still needed to return confidence to the underlying uptrend. Monday’s high at 1306.04 now provides an intervening barrier.

The back-burner is exactly where the debate about potentially hawkish replacements for Janet Yellen belongs. If John Taylor for example were to get the nod, there would be an expectation that he utilize his own Taylor rule.

Even if he were to modify some of the assumptions of the rule he devised, as he has suggested he would consider, one might reasonably expect he’d push for faster policy normalization. However, it is also reasonable to ask, what is “normal” these days?

After nearly a decade of extraordinary policy measures, the landscape is nothing like what it was when Taylor created his rule 25-years ago. In accelerating the present tightening cycle — if you can really call it that — not only does he risk popping the stock bubble, but he could also tip the U.S. economy into a long-overdue recession.

That seems like risks not many at the Fed would be willing to take; perhaps even Taylor himself. Certainly President Trump doesn’t want either of those two things to happen on his watch, so why would he drastically alter the status quo? My bet is that he does not . . .

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