Multiple Events Contribute to a New Record Yearly High in Gold

Trading to a new record high this year, gold prices effectively breached the $1300 per ounce mark earlier this week and have not looked back. Today gold prices traded to an intraday high of $1334.50, effectively a new record yearly high. As of 2:30 EDT, gold is trading solidly higher up $7.70 at $1329.90.

This week’s trading activity has resulted in a respectable 2 ½% increase in the value of gold. With a yearly gain of approximately 12%, gold’s performance and price increase have been predicated upon a number of factors and events. It is this multiplicity that gives this recent rally so much strength.

Some of these events are interrelated. However it is the synergistic combination that has fueled this rally, but more importantly, could continue to be the underlying causes for a further dramatic rise in the precious yellow metal.

Unenthusiastic Jobs Report

Today’s jobs report came in well under analyst estimates of 185,000. U.S employers created 156,000 new nonfarm payroll jobs in August. However, these numbers continue the longest consecutive streak of U.S. jobs growth in history. This month’s addition of 156,000 new jobs extends this run to its 83^rd consecutive month.

A More Dovish Federal Reserve (Low Interest Rates)

Even though the United States has been growing its employment base for the last consecutive 83 months, many analysts believe that this month’s Job report numbers are tepid at best regarding their effect on inflation and the Fed.

According to Bloomberg Markets, Andrew Hollenhorst, chief U.S economist at Citigroup Global Markets wrote, “The report was marginally disappointing for those looking for higher inflation, but not too far from our expectations. Markets, and the Fed, will remain in “wait and see” mode – primarily focused on prospects for inflation and potentially stimulative government policy."

The Falling U.S. Dollar

The U.S. dollar has been in a dramatic freefall since December 2016, when the dollar index was trading just below 104. Today the dollar index is trading fractionally higher on the day at 92.78. The cumulative effect of a falling U.S. dollar has been an 11% decline in value this year alone. Since gold and other precious metals are paired against the dollar, both gold and silver prices will gain value as a direct result of a lower dollar.

The Debt Ceiling

The U.S. government will effectively run out of money to pay its bills at the end of this month. This will require our current debt ceiling to be raised. The implications of this upcoming event could be profound.

According to Reuters, “A potential standoff over the U.S. federal debt ceiling is raising alarm bells among fund managers who fear a repeat of 2011 when a protracted showdown over increasing the government's borrowing limit … U.S. investors are raising cash and buying protection, bracing for a messy fight ahead of the Treasury Department's Sept. 29 deadline to raise the debt limit, a legal cap on how much the U.S. government is allowed to borrow.”

North Korea’s Nuclear Weapons Development and their Threats to Use Them

North Korea’s desire to become a nuclear power, resulting in underground nuclear tests, missile tests, and strong threats of nuclear destruction against the United States have been extremely supportive of gold prices.

As reported in TheStreet on August 29^th “North Korea's latest missile test -- the first to fly directly over Japan since 2009 -- was launched late last night and landed just 1,200 kilometers (750 miles) off the Japanese island of Hokkaido.”

The Trump Presidency

Lastly, there is a simple truth about this current administration: it is untested with a non-politician at the head of our country. Whether you like him, love him, or hate him, you have to acknowledge his leadership style is unconventional, and that in and of itself ratchets up the uncertainty factor.

Financially Speaking, what is a Perfect Storm ?

It is clear that multiple factors are influencing the current rally in gold. From one week to the next, from one month to the next, one or more of these factors has been weighing on market participants and investors as they bid up the price of gold. A perfect storm, financially speaking, is the direct result of a combination of factors or events that when they occur in unison create a much greater net effect. So, I leave you with this thought: are the factors and events which are currently at play creating a perfect storm scenario for the price of gold?

Wishing you as always, good trading,