DMR–Gold turns south on technical/trading issues

DAILY MARKET REPORT

Gold ran into significant resistance just short of the $1295 early yesterday.  It subsequently turned south and that sell-off carried over to today’s open.  Gold is trading now at the $1281 level and off about $8 on the day.  Silver is down 5¢ at $15.63. The turn south looks more like a technical/trading issue than anything substantive.

Recent dovish pronouncements from the Fed chairman and the possibility of some kind of rapprochement between the United States and China on trade underlies psychology in the gold market at the present. “Any kind of agreement should be bullish for gold because of a stronger Chinese renminbi,” Commerzbank analyst Carsten Fritsch told Reuters overnight. “Gold is in positive environment. It had such a strong year-end, it is not surprising to see some profit taking,” he said.  As it is, the dollar is trading to the upside this morning and gold has taken the opposite tack.

Quote of the Day
“Take some advice from two observers who have been around for awhile: The long term gets here before you know it. . . .Instead, we’d be dependent on foreign investors’ acquiring most of our debt — making the government dependent on the ‘kindness of strangers’ who may not be so kind as the I.O.U.s mount up. We can’t let that happen — not if we want an America that is able to provide growth and stability at home while maintaining global leadership. We would risk returning with a vengeance to stagflation — the ugly combination of inflation and economic stagnation that we tasted in the 1970s.” – Paul A. Volker and Peter G. Peterson

Chart of the Day

Chart note:  The subject of much controversy as to its positive or ill-effects, the Federal Reserve continues to reduce its original $4.5 trillion balance sheet albeit at a very slow pace.  Thus far, the Fed has allowed about $350 billion to run-off the balance sheet and its total holding is now about $4.14 trillion. The pace of quantitative tightening is expected to ratchet-up as 2019 progresses and this is causing concern among some analysts. “We believe the increase in the speed of the Fed balance sheet runoff could have a significant impact on the market,” says Brandywine Global Investment Management in a Seeking Alpha report this morning, “especially the long-end of the Treasury curve, as most of the Fed’s holdings are long-dated. With almost all major central banks reversing quantitative easing – including the European Central Bank’s recent coda to its asset purchases – we could face more of a dollar liquidity shortage.”

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