The Daily Market Report: Gold Pulls-Back Within Range as Dollar and Stocks Rally

USAGOLD/Peter Grant/10-24-17

Gold pulled back within the range, weighed by risk appetite and a firm dollar. On the other side of the coin, are political and geopolitical risks offering support. These opposing forces have kept the yellow metal fairly well contained of late.

While the underlying trend remains positive, a definite push back above $1300 is needed to return focus to the high for the year at 1357.50. That high was established back in early-September.

President Trump’s impending choice for Fed chair is also weighing somewhat on gold, with a couple of policy hawks in contention. While the Fed chair does not set policy alone, a vocal hawk at the head of the table, would give the impression that rates are more likely than not to head higher.

My contention is that if “reflation” is the goal of the President, why hamstring yourself by appointing a hawk? It would seem that Janet Yellen might be the ideal choice. She is both a dove and a know commodity to the markets. However, there are considerable doubts as to whether the President will reappoint her, and whether she’d accept if asked to serve again.

At the other extreme is economist John Taylor, whose Taylor Rule suggests that the Fed funds rate should be closer to 4% than 1%. It would be difficult to convince the current FOMC to move away from the slow/steady tightening regime instituted by Yellen, but he would also be under constant external pressure to institute the rule that bears his name.

And it’s worth remembering that the Fed opted to hold steady on rates in September. The pause was largely inspired by the Fed’s inability to generate 2% inflation. While there have been some indications of hotter inflation more recently, it is largely thought to be associated with higher energy prices in the wake of the recent hurricanes. The situation with regard to inflation probably really hasn’t changed much since September, so why is the market fully pricing in a December rate hike?

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