Tariffs, Trade Wars, and Treaties Will Shape the Financial Fabric in June

Although gold pricing is slightly higher for the week, it will finish lower today as well as for the month as a whole. Gold prices lost approximately 2.2% in May for the second consecutive month of slightly lower pricing.

Selling pressure in May was unique in that it was the first time this year where gold prices broke below the 50-day moving average, as well as breaking above the psychological support level at $1,300 per ounce.

After reaching a monthly low of $1,281 per ounce on May 18, gold prices recovered throughout the remainder of the month, moving back above $1,300. This was a critical level that for a short time existed as resistance but has once again become a support level.

The most significant selling pressure this month can be directly attributed to dollar strength. The dollar index started the month of May at approximately 91.56 and traded to a high of 95, before softening over the last two trading days. That is a 4 ½% increase in value that can be directly attributed to this month’s weakness in gold pricing.

During the month of May, gold began trading at $1,315 and closed at $1,303 for a net loss of $12 on the month. This marks a decline of just under 1%. While it is clear that gold prices did drop in the month of May, it held up exceptionally well considering the fierce headwinds that a 4 ½% gain in dollar value created.

Next month begins with a jobs report, and then once again moves to the geopolitical issues that have been supportive of gold prices such as the current trade dispute between the United States and China, the on and off again summit between the United States and North Korea, and the newest wildcard placing the euro zone in financial jeopardy with Italy’s political upheaval and massive €2.3 trillion-dollar debt.

These factors and events will undoubtedly play a key and critical role in helping shape gold pricing in June. However, it will be dollar strength or weakness that will most likely have the most significant impact as to the direction of the precious metals complex.

Given that dollar weakness or strength will be partially shaped by the outcome of the geopolitical events just mentioned, market participants will shape dollar sentiment in terms of the perception of rising, stable, or falling interest rates. For the most part, the current trajectory of monetary policy through the federal reserve has been factored into current market pricing.

If the Federal Reserve continues to implement rate hikes as initially planned, we could see interest rates and yields stabilize over the next couple of months. However, if the

Federal Reserve ratchets up the number of rate hikes this year beyond the three proposed, that action could move dollar strength yet to a new higher level. Currently, there is an expectation that the Fed will initiate a rate hike in June.

Wishing you as always, good trading,