DMR–Gold even on the day, speculation about Fed-White House split overhangs markets


Gold pushed briefly over the$1200 mark in late European trading today on concerns of renewed trade tensions – this time between the United States and the European Union – and continued firming of China’s yuan.  As we go to fetch this report to the server, gold is even on the day and trading at the $1296 mark.  Silver is down 4¢ at $14.76.

The most pressing issue in the gold market, though, is not the value of the dollar or the trade wars, but the one situation that underlies both – the determinations of the Federal Reserve on interest rate increases and the president’s remarks late last week. Though many expect something of relevance to occur at Jackson Hole, we are in the camp that thinks nothing much will happen there and that the Fed chairman’s speech will be significantly less than controversial. The Fed-White House split and the speculation about who will win out is likely to hang over all the markets, including gold, for some time to come.

Quote of the Day
“Why does the cycle move as it does? What causes these periodic alternations, this ebb and this flow, in the national priorities?  If it is a genuine cycle, the explanation must be primarily internal. Each phase must flow out of the conditions – and contradictions – of the phase before and then itself prepare the way for the next recurrence. A true cycle is self-generating. It cannot be determined, short of catastrophe, by external events. Wars, depressions, inflations may heighten or complicate moods, but the cycle itself rolls on, self-contained, self-sufficient and autonomous. . .The roots of cyclical self sufficiency lies deep in the natural life of humanity. There is a cyclical pattern in organic nature — in the tides, in the seasons, in night and day, in the systole and diastole of the human heart.” – Arthur M. Schlesinger, Jr., The Cycles of American History

Chart of the Day

Chart  note:  As the chart above illustrates, gold does not always react to the start of a crisis as anticipated. As the credit crisis gained momentum in 2008, gold declined as the dollar rose – acting in much the same way it is reacting now to the emerging markets crisis and U.S.-China trade war. It was not until late 2008, when the full extent of the crisis became all too apparent, that it began to move higher. Thereafter, from 2009 to September 2011, it rose to its all-time high of $1895 – a 215% gain in three years.

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