Gold slipped to a two-week low in earlier trading amid heightened risk appetite springing from the recent advancement of the 2018 budget proposal and the positive implications for tax reform. However, these losses could not be sustained and the yellow metal is now trading higher on the day.
The dollar also got a boost today, but it was primarily associated with yen and euro weakness. The former being weighed by rising concerns about the Catalonia crisis, the latter as a result of Shinzo Abe’s landslide victory.
Abe’s snap election gambit payed off, consolidating his power. This likely means that Abe-nomics will be perpetuated for some time to come, which bodes ill for the yen. Additionally, Abe is expected to ramp up military spending to address North Korean and Chinese provocations. There is a legitimate concern that an Asian arms race may be in the offing.
While markets seem to have latched on to the tax cut story, political and geopolitical risks are still likely to limit the downside for gold. In fact, the yellow metal has proven to be quite resilient in the face of both dollar and stock gains.
If either of those markets roll-over, gold should reclaim $1300. The 1308.80 resistance level is still seen as the key to unlocking a retest of the high for the year at 1357.50.