Fed Comments Support Dow, NASDAQ Composite and Gold

As of 4:00 PM EDT U.S. equities surged today with the Dow Jones industrial average up over 500 points, a 2.06% gain. The NASDAQ composite had a stellar performance today up 2.38%, which was the largest percentage gain when compared to the S&P 500 and the Dow. Gold also closed up slightly on the day gaining approximately three dollars, with August futures currently fixed at $1330.80.

U.S. equities as well as gold moved in tandem to the upside based largely upon comments made by Fed Chairman Jerome Powell.

According to Reuters “The Federal Reserve will respond “as appropriate” to the risks posed by a global trade war and other recent developments, Fed Chairman Jerome Powell said on Tuesday in remarks that seemed to open the door to the possibility of a rate cut. In a brief statement included as part of a speech on broader monetary policy issues, Powell said the Fed was “closely monitoring the implications” of a trade dispute that has, since the Fed’s last meeting, disrupted global bond and equity markets and posed risks to U.S. and world economic growth.”

Powell’s statements seem to be in alignment with statements made yesterday by St. Louis Federal Reserve Bank Chairman James Bullard who said  “[the]central bank might have to cut interest rates soon,”.

Collectively Chairman Powell and James Bullard’s statements suggests a willingness by the Federal Reserve to implement rate cuts to stimulate economic growth which is now much slower, than expected prior to the onset of the trade war between the United States and China taking such a huge effect on commerce.

Typically, gold which acts as a safe haven asset, and U.S. equities do not move in tandem. However, in the case of a possible rate cut by the Federal Reserve both closed in positive territory. The scale of the moves were not equal though U.S. equities performed ten times stronger than gold which only grew by about 0.2%, while all three indices had gains above 2% on the day.

However, gold could be consolidating, or even entering a correction. After exhibiting such strong gains recently, one would expect a period of consolidation to occur before the next major move begins, whether that is a continuation of the rally or a small pullback after such a parabolic rise is yet to be seen.

Yesterday we spoke about gold surpassing palladium prices making it the most expensive precious metal of the complex. However, based on today’s solid performance in palladium in which it gained just under 2%, has resulted in gold’s price superiority extremely short-lived. The key will be whether or not U.S. equities continue to rally, because a strong equities market will be highly supportive of the industrial components of palladium as well as platinum and silver to some extent.

Wishing you, as always, good trading,