Tariffs, Trade Wars, Trump, and the Fed

Although gold is trading lower on the week, Friday’s trading activity resulted in moderately higher pricing with gold closing up seven dollars. August Comex futures are currently fixed at $1,231 after adding today’s net gain of 0.57%.

However, the real story today is not so much gold as it is the U.S. dollar. The dollar index is currently down by almost 0.80%, which is a 75-point drop, taking the dollar index to 94.19.  The gains in gold futures today were all due to dollar weakness.

We can certainly see that in the spot market. As of 4:15 PM Eastern standard time physical gold closed up $8.40 on the day. According to the Kitco Gold Index (KGX), it was dollar weakness which added $9.40 value today, but after subtracting one dollar which is directly attributable to selling pressure, you get the final closing price of $1,230.70 per ounce and a net gain of $8.40.

It was comments made by President Trump yesterday on recent actions of the Federal Reserve and their current monetary policy that caused the dollar to trade dramatically lower today.

In an interview with CNBC, the president said that he is not “thrilled” that the Federal Reserve is hiking interest rates.  "Because we go up and every time you go up they want to raise rates again. I don't really - I am not happy about it. But at the same time, I'm letting them do what they feel is best. But I don't like all of this work that goes into doing what we're doing."

The question becomes twofold, first, whether the president will continue to put pressure on the Federal Reserve, and what, if any, effect that would have on the independent policies of the Fed. Secondly, what impact the president could have on taking the U.S. dollar lower. A lower dollar would soften the effect of tariffs Trump plans on initiating by making goods less expensive with other countries.

While it seems highly unlikely that pressure from President Trump will influence the Federal Reserve to deviate from its current timetable of initiating interest rate hikes, there is a high likelihood that he will continue to voice his opinion through tweets.

Most importantly will be his influence on the U.S. dollar, and whether or not he shapes U.S. policies which could move the dollar lower. Since recent weakness in gold prices have been a direct result of dollar strength, a reversal in the dollar would have the opposite effect taking gold prices dramatically higher.

Wishing you as always, good trading,