Trump Controversy and the Fed Result in a Flight to Safe Haven Assets

Investors and market participants continue to digest and parse key events from yesterday. Political turmoil, along with the release of last month’s FOMC minutes, has caused major repercussions across a wide swath of financial markets.

These repercussions are sending strong ripples throughout the U.S. equities markets, resulting in a triple digit decline in the Dow Jones Industrial Average and a 1.3% decline in the NASDAQ composite. In tandem is a flight to safe haven assets, such as gold and silver, and continued downside pressure in the U.S. dollar.

Minutes from last month’s FOMC meeting revealed that the Federal Reserve has been increasingly cautious about triggering another rate hike this year. This is based on the current level of inflation which is well under their 2% target. Some Fed members have suggested a pause in rate hikes as they ascertain whether this current trend will persist.

What began as just a few members who were apprehensive about inflation coming in well under target has swelled in numbers and is no longer in the minority.

In an interview with Reuters UK, Richard Franulovich, senior currency strategist at Westpac Banking Corporation, said, "The size of the cautionary group is expanding, and it’s expanding in ways that mean it’s, at the margin, a little less likely the Fed will be hiking rates in December."

It now seems clear that it is highly unlikely that there will be one last rate hike in 2017. According to the CME Group’s FedWatch tool, the probability of an interest rate hike this year is 42%.

In addition to the minutes, recent controversy surrounding Trump has greatly increased concerns that this administration will not be able to work with Congress and implement campaign promises such as tax reform, infrastructure projects, and healthcare.

As reported by Bloomberg Markets, “Stocks began the day lower on speculation that Trump’s policy agenda was increasingly imperiled after he disbanded two advisory councils staffed by CEOs and slammed Republican members of Congress who were critical of his remarks on race.”

As U.S. equities moved lower the level of volatility as expressed in the VIX spiked dramatically to the upside. Precious metals also got a tremendous upside push for the second day in a row. Gold futures are trading $10.80 higher, at $1293.60, as of 330 EDT. Now we are once again in striking distance of $1300 per ounce.

Based upon our current technical studies, we believe there is a high probability gold prices will break through the 1300 barrier and trade as high as 1317 to 1320 per ounce.

Wishing you as always, good trading,