Small Steps, Small Gains, Gold Advances with Caution

Now in the third straight day of price advances, gold prices have moved up roughly $15 from the low achieved earlier this week when gold traded to $1204 an ounce.

Over the last three trading days, gold has had a higher intraday low than the previous trading session on each occasion. Prices have also traded to a higher high than previous sessions, along with consecutively higher closes. However, during each of these trading days, the positive net change can be characterized as only a small upside move.

Mondays and Tuesday's advances, for example, closed marginally higher with net gains of just a few dollars each day. Today’s increase, which in comparison to Monday and Tuesday's moves was much larger, amounted to five dollars gain. The most active August futures settled at $1219.70, a net gain of 4/10 of a percent on the day.

Trump and the Fed

Although the geopolitical uncertainty of some global hotspots has diminished, it is the political uncertainty intrinsic to the ongoing investigation of President Trump and his eldest son, Don Jr., that is partially responsible for the price advances in gold over the last couple of days.

In a prepared statement released this morning by the Federal Reserve’s Chairwoman, Janet Yellen, along with her testimony, confirmed and reiterated the Fed’s current policy to continue along its path of small interest rate hikes on a regular basis. However, her overall tone has been interpreted as a much more dovish stance than in recent statements.

As reported by CNBC this morning, “On Wednesday, Fed Chair Janet Yellen sounded more dovish in tone, and said interest rates likely do not need to rise substantially higher to achieve the central bank's goals around monetary policy normalization.

Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance," Yellen said in prepared remarks.”

It seemed U.S. equities took cues from this more dovish tone, and ignoring potential political turmoil from the current administration, bid up U.S. equities returning them to rally mode, at least in the short term.

At the same time, we saw gold prices spike higher immediately following the release of Yellen’s prepared statement, then trade flat for the remainder of the session. Whether gold and silver prices continue to trade higher in the upcoming days is unknown, but what is known is that this current rally in the precious metals has been based upon small steps and small gains.

Wishing you as always, good trading,