Gold and U.S. Equities Continue Their Weeklong Rally

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There has been an extended rally in both US equities and gold pricing this week. Both asset classes have moved to higher ground. Gold and equities running in tandem with price advances for a sustained time period is a rare occurrence. Typically, these asset classes have an inverse correlation. Liquidity will usually move from equities to gold on signs of weakness in the risk-on asset class, and move from gold to equities when investors favor stocks over safe-haven investments.

Beginning on Thursday of last week (May 30th), traders have moved gold prices higher each consecutive day. Although today’s gains in gold futures are nominal, bullish market forces resulted in the highest high gold has achieved this year.

As of 3:30 PM EDT gold futures, basis the most active August 2019 contract is up $2.20, and fixed at $1344.90. However, it was the intraday high that warranted the most attention as gold traded to a new yearly high of $1352.70.

Today’s gains fall solidly on the shoulders of dollar weakness. With gold up +0.17% and the US dollar index down -0.50%, clearly today’s price advances in the precious yellow metal are entirely due to a falling US dollar.

Dollar weakness this week is a direct result of possible Federal Reserve action beginning next month with the first rate cut since the Fed began to raise rates as they moved to a monetary policy of quantitative normalization, rather than quantitative easing. Statements made by both James Bullard, President of the St. Louis Federal Reserve Bank on Monday, and Federal Reserve Chairman Jerome Powell on Tuesday has opened the door for a series of rate cuts to be completed in 2019.

Beginning on Wednesday with the release of the ADP jobs report we saw in increased probability that the Fed would begin a series of rate cuts. Although 175,000 new jobs added in May were forecasted, the actual ADP numbers came in at 27,000. Today U.S. Labor Department released its jobs report which also increased the probability of a Fed rate cut. It was forecasted that non-farm payroll jobs in May would increase by 177,000. However, when the report was unveiled this morning, it showed that only 75,000 non-farm payroll jobs were added in May.

Wishing you, as always, good trading,

Gary S. Wagner - Executive Producer