Gold Struggles to Close in Positive Territory

After trading to a new intraday low of $1272 an ounce, gold prices struggled to recover and closed slightly positive on the day. As of 3 o’clock EDT, gold futures are trading at $1279.30 per ounce for a net gain of a dollar on the day.

Physical gold also traded marginally higher and is currently fixed at $1277.70. This marginal gain is a combination of a weaker U.S. dollar adding $3.80 of value, and selling in the market resulting in a $-2.40, for a net gain of $1.40 on the day.

Dollar weakness has more than compensated for any selling in the market today, with the dollar index currently trading near session lows at 93.55, just off the intraday low of 93.47.  Adding to today’s dollar weakness, U.S. equities traded under dramatic pressure before recovering, with the Dow Jones currently off by 100 points at 23,003.41.

The continued risk-on environment is a direct result of U.S. equities moving to new record highs on an almost weekly basis.  

According to Jim Wyckoff of Kitco News, “Recent rallies in world stock markets to record or multi-year highs had been keeping general trader/investor buying interest focused on the equities and away from the precious metals. If the stock markets show some sustained weakness (and it can certainly be argued the very mature bull market runs in stocks are due for at least a decent corrective pullback), then gold and silver prices would benefit significantly.”

Market participants and investors have been focused intensely on two major issues, tax reform and President Trump’s selection of the next Fed chairperson. As reported in MarketWatch, “No Fed officials are scheduled to speak, but investors are bracing for President Donald Trump’s pick to lead the U.S. central bank. Trump on Tuesday asked Senate Republicans who should be the next Fed boss, and Stanford University economist John Taylor reportedly beat out Fed Gov. Jerome Powell. The president is expected to announce his choice before starting a trip to Asia on Nov. 3.”

In regard to the tax cut proposed by this administration, although legislation was passed recently to pave the way for significant tax cuts, major obstacles remain as decisive roadblocks to implement this legislation. One obstacle is the growing budget deficit that increased this year by roughly $80 billion to total $666 billion this year. Add to that the future budget and the inherent entitlements which make it extremely difficult to cut taxes without increasing the current budget deficit.

The current rally in U.S. equities has been primarily predicated upon the optimism created by a potential tax cut. Should this legislation stall we could expect to see volatility and lower pricing in U.S. equities is a direct result. This, of course, would be extremely favorable for the precious metals.

Wishing you as always, good trading,