One Part Buyers, One Part Dollar, and a Dash of Chaos, Gold Surges to Higher Ground

Gold is currently trading strongly higher on the day.  As of 4 o’clock EDT, it is at $1254.30. This based on the most active August 2017 futures contract, which is a net change of $8.80 on the day. What jumps out as being a little different than other up day's this week is that today’s upside move is a combination of roughly equal parts weak U.S. dollar and strong buying in the market.

Expressed best through the Kitco Gold Index (KGX), physical gold is currently trading up $10.20 on the day. Of that $10.20 gain, $4.20 is directly attributable to a weaker U.S. dollar, with the remaining six dollars attributable to buyers bidding up the price.

Although the dollar has been under immense pressure for the better part of this month, this last week has resulted in almost a 2 ½% decline in the dollar index value.

Much of today’s move is based upon the belief that there is turmoil in Washington, specifically in President Trump’s administration and staff. In an interview with MarketWatch, Naeem Aslam, chief market analyst at ThinkMarkets U.K. said, “U.S. President Donald Trump’s team falling apart and the investigation about Russian involvement [in the election] are the reasons for the steeper climb in gold prices Friday.”

Besides the current Russian investigation, the current administration has been absolutely bogged down, and as of yet has not been able to deliver on key campaign promises. A perfect example of this was health care reform, which was left in the dust as this current administration, along with his Republican counterparts, were unable to come up with the “Replace” component of their plan to repeal and replace Obamacare.

As such, this brings into question whether or not this current administration has the wherewithal to initiate the sweeping tax cuts he proposed during his election campaign, as well as any large infrastructure programs that he had planned.

Whether the cracks are beginning to form in this current administration or this administration can somehow quickly put together the necessary components to actualize the vast campaign pledges is unknown. What is known is that currently this administration is bogged down by challenges resulting from the impending Russian collusion investigation. This has dampened the real possibility of dramatic change that would come from the sweeping proposals laid out by candidate Trump last year.

Wishing you as always, good trading,