Gold Rallies and US Dollar Declines Following Repeal and Replace Vote Failure

In an 11^th hour move last Friday, President Trump asked House leaders to cancel the vote to repeal and replace Obamacare. Market participants had little to no time to respond to this news on Friday. They did, however, have an opportunity to react to this news yesterday as markets opened overseas. What followed was tremendous downside pressure in the Dow Jones future and the US dollar, along with an upside spike in gold prices.

The failure of the current administration to pass the Republican AHCA health bill caused market participants to question whether President Trump will be effective in converting other campaign promises into active legislation. Whether it is tax reform, the initiation of large infrastructure projects, regulatory reform or trade agreement reform, the ability for President Trump to harness his negotiation skills and “art of the deal” is brought into question following Friday’s defeat.

Buying and US Dollar Weakness Each Contribute to Gold’s Higher Pricing

Trading to an intraday high of $1261, gold prices have managed to hold onto the vast majority of gains. As of 330 Eastern standard time gold is trading at $11.20 higher at 1254.10. This net gain is a combination of a weaker dollar along with safe haven buying. As indicated through the KGX (Kitco Gold Index), today’s $11 contains a $7.10 (57 %) gain due to a weak US dollar, and a $4.10 (33 %) gain attributable to buying.

Hedge Funds and Money Managers Increase Long Gold Positions

Per Friday’s COT (Commitment of Traders) report, the CFTC noted an increase in long gold positions by institutional traders and large hedge funds during the week of March 21. This comes following the two preceding weeks in which hedge funds trimmed their long positions in gold.

In an interview with Bloomberg News, Todd Colvin of Ambrosino Brothers cited global uncertainty and Trump hype as the major underlying influences for the most recent price increase in gold. According to Colvin, market participants are trading gold as a flight to quality.

$1300 Possible but First Gold Must Trade and Close Above 1265

Based on our current technical studies, we show that current resistance is at $1265 an ounce, which is the highest gold is traded at this year. Following a price decline which accelerated immediately following the presidential election in November of last year, gold traded to 1120 during the last week of December. From the end of December on, gold began to rally through January and February culminating at the highest point gold is traded to in 2017. After declining to just below $1200, gold began to rally immediately following this month’s FOMC meeting. Gold is now trading within dollars of the yearly high which is our current level of resistance. If gold can effectively close above that price point ($1265), our next target is $1300 per ounce.

Wishing you as always, good trading,