Equity Weakness Supportive of Higher Gold Pricing

After trading to an intraday low of $1273.60, gold prices recovered as the U.S. equities markets went negative, closing up three dollars at $1283.50. Some analysts claim it was short covering from futures traders along with bargain hunters bidding up the precious yellow metal that led to this recovery.

According to Jim Wyckoff of Kitco News, “Gold prices were ending the U.S. day session modestly higher Monday. Silver prices were posting slight gains. Both markets were near their session highs after they hit two-week lows early on. Short covering by the futures traders and some perceived bargain buying in both cash and futures supported the late-session bounce in prices.”

Physical gold also traded higher on the day, and as of 5 o’clock EDT is fixed at $1281.90, up $1.80 on the day. According to the Kitco Gold Index (KGX), today’s $1.80 gain contained a positive net gain of $4.35 based upon traders bidding up gold and $-2.55 which is a direct result of a strong U.S. dollar.

Currently, there are two major national issues which are on the minds of market participants, traders, and investors. The first of these issues is whom President Trump will nominate as the next chairman of the Federal Reserve. According to articles last week, administration officials stated that Jerome Powell is currently at the top of Trump’s short list of five candidates.

The candidate selected will be instrumental in determining if future actions by the Fed are more hawkish or dovish than the current Chairwoman Yellen. As such, many market participants are genuinely in a holding pattern as they await that news.

The second major issue front and center in the minds of investors and traders is the tax cut proposal for 2018. Although initial legislation was passed last week, questions as to whether these cuts can be implemented have been raised.

Our annual budget deficit has swelled to $666 billion, an increase of $88 billion this year, which creates the first red flag of potential difficulty in passing this tax cut legislation. Also, there is the fact that our current budget, with all the intrinsic entitlements currently in the budget, makes it difficult and nearly impossible to levy a tax cut and still pay for these programs. As such, the current administration, as well as the Senate and Congress, have their work cut out for them to actualize and finalize a tax cut which is one of the central promises of President Trump.

Wishing you as always, good trading,