Multiple Factors Support Gold Prices Resulting In An Extended Rally

Gold continues to shine and has gained value for the last six consecutive trading days. Since the conclusion of last week’s FOMC meeting, market participants have witnessed a powerful rally in gold which has resulted in a 4% gain in a single week. With gold gaining more than $50 over the last week, it is clear that there are multiple factors currently at play.

Fed Monetary Posture Continues To Be Accommodative

Statements made by Chairwoman Janet Yellen following last week’s meeting alleviated fears that the Fed might implement a more hawkish and aggressive stance in regards to the pace of rate hikes this year. This more dovish tone broke the inertia that existed in gold prices, which had been trading under pressure until hitting intraday lows of below $1200. Add to this a tumbling US dollar, which combined with short covering and safe haven buying resulted in a $20 gain in gold prices last Wednesday. 

President Trump’s Ability To Convert Promises Into Reality

As witnessed by yesterday’s dramatic 237-point drop in the Dow, market participants are becoming more and more concerned as to whether President Trump can deliver on his campaign promises by converting words into working policies. Recent advancements in US equities have culminated in all the major averages trading to new record highs. This is based on optimism created by a revitalized US economy, a direct result of campaign pledges resulting in lower tax structures, major infrastructure projects, regulatory reform and replacing Obamacare with a more effective national healthcare program.

The “Trump trade,” is primarily based upon unrealized promises and commitments. One of the first major tests of this administration’s ability to convert words to policies will take place tomorrow. Washington will vote on a referendum to repeal and replace Obamacare on Thursday. The outcome of this vote not only reflects the future of healthcare in the United States, but will also speak to the credibility of this administration to deliver on its promises.

Market participants will have the first opportunity to see whether President Trump can harness his “art of the deal,” and convert a campaign pledge into a new policy. The simple fact is that US equities have been gaining value based on the belief that this new administration can deliver. Tomorrow we will gain further insight on whether this assumption is correct.

Wishing you as always, good trading,