Possible Fed Action and Geopolitical Events Reignite Interest in Gold
Gold has once again found its footing and now for a second consecutive day has closed higher when compared to the previous close, and gains have included both a higher low as well as a higher high. As of 5:00 PM EDT gold futures basis the most active August contract are currently fixed at $1336 per ounce which is a net gain of $9.20 on the day.
Today’s gains have been attributed to multiple factors. First there is the continuing belief of a high probability that the federal reserve will implement interest rate cuts later on this year. Possibly as early as July when the next FOMC meeting begins.
Secondly, the continued concerns regarding the current trade war between the United States and China are still at the forefront shaping the current economic environment. However there has been a new flareup geopolitically speaking. It was reported that two oil tankers were attacked in the Gulf of Oman, resulting in one tanker sustaining damage and the other one set adrift and on fire.
According to Reuters, “Two oil tankers were attacked on Thursday and left adrift in the Gulf of Oman, driving up oil prices and stoking fears of a new confrontation between Iran and the United States, which blamed Tehran for the incident.”
“It is the assessment of the United States government that the Islamic Republic of Iran is responsible for the attacks that occurred in the Gulf of Oman today,” U.S. Secretary of State Mike Pompeo told reporters in a brief appearance without providing hard evidence to back up the U.S. stance.
This is precisely the reason that Iran has been on the radar of the United States with the general in charge of the region recently stating that the threat from Iran is imminent. His words came to fruition today. The U.S. dollar was slightly supportive of higher precious metals prices although any gains due to dollar weakness were fractional. Currently the dollar index is fixed at 96.90 putting it down 0.070 (-0.07%) on the day.
The net result of recent geopolitical events as well as a defined pivot for the federal reserve in regards to their monetary policy from one of quantitative tightening, to the return to accommodative measures resulting in a return to quantative easing. As such the recent rally seems as though it is back in full swing, with the correction being nothing more than a pause before continuing to higher ground.
Wishing you, as always, good trading,
Gary S. Wagner - Executive Producer