Gold Runs Up On More Brexit Ramifications and Dovish Fed

July 1, 2016 - 5:14pm

 by Gary Wagner

The repercussions from Brexit are far from over. The Bank of England is looking at another round of quantitative easing that may go as high as £250 million (about $330 million). That freer and easier money makes almost any investment attractive, in Great Britain as well as globally.

So, we saw gold, oil and worldwide equities up again today, although in the U.S., probably due to the long Independence Day holiday weekend, trading was muted and the major indexes were struggling to hold their gains.

Gold is up a very strong $17.40 at 3:30PM and silver is once again up a window-shattering amount – 5.40%.

We believe that most of all the BOJ action is a move to protect the City of London’s position as the co-lead star (with New York) in the big financial show. There were some rumblings on this side of the Atlantic in the central banking area, as well.

The Federal Reserve’s usual inter-meeting chatter has begun. Stanley Fischer, Vice Chair of the Board of Governors of the Federal Reserve System, while swatting down the ludicrous notion of negative rates in the U.S., slyly reaffirmed the Fed’s holding to current interest rate levels for the nonce.

Cleveland Fed president Loretta Mester – an FOMC voter – warned that “policymakers cannot let the lack of economic clarity distract us from our important mission,” by which she meant adjusting rates upward, although she said neither the timing nor the data had quite come right yet. Mester is a noted rate hawk.

Another voter on the FOMC, James Bullard, who is president of the St. Louis Fed, said the economy would “need” only one more rate hike this year. Bullard is a mild hawk but he has been viewed as softening his harder-line views of late.

We do have a number of worries that gold bulls, in particular, will find interesting. World manufacturing is in a funk, especially in China. The U.S. is holding its own and is distinctly gaining strength from a cheaper dollar in the last year.

The Caixin survey of manufacturing managers’ sentiment (a private gauge of nationwide factory activity) slipped once more in June, holding in negative territory for the 16th month running.

The index fell for the third month in a row, now to 48.6 in June from 49.2 in May. Ouch, that hurts.

"Overall, economic conditions in the second quarter were considerably weaker than in the first quarter, which means there has been no easing of the downward pressure on growth," said Zhengsheng Zhong, an economist at CEBM Group.

"Against the backdrop of a turbulent external environment, and in order to avert a sharp economic decline, the government must strengthen its proactive fiscal policy while continuing to follow prudent monetary policy," he said.

On the other hand, American manufacturing expanded for the fourth straight month in June, hitting the strongest reading in 16 months as the outlook for new orders and production improved.

The Institute for Supply Management said Friday its manufacturing index rose to 53.2 last month from 51.3 in May. Anything above 50 signals growth.

The Federal Reserve's measure of manufacturing output slipped 0.4 percent in May, however, as automobile production fell. (Typical for summer.)

The manufacturing issue is one of the most fundamental of all fundamental indicators. Let’s see how the world does and how it affects gold.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Gold Forecast: Proper Action

This morning we sent out a special trade alert recommending the initiation of a long position in gold. Traders taking that call bought gold at 1338 (basis August Comex contract).

Maintain your current long gold at 1338.

Maintain your current stop below 1307.

Gold Market Forecast

Throughout the first part of this trading week we were trying to ascertain whether the most recent price action in gold could be viewed as simple consolidation or the onset of a small correction.

Either scenario would be quite feasible, considering the dramatic upside surge witnessed last week in the precious metals markets.

Specifically gold, which traded to an intraday high of 1360 and seemed to settle back at around 1320, showed technical indications that either of these two scenarios could be in play.

It was our personal opinion then, as it is now, that what we were experiencing was consolidation.

Furthermore, it was our belief that as the market consolidated it would once again return to its upside rally mode, taking gold to higher pricing.

That is exactly what we saw unfold today with gold trading dramatically higher up $23 on the day.

Trending Markets Forecast

A most interesting week in US equities. After the dramatic drop in excess of 600 points in the Dow Jones industrial average last week, Monday of this week provided more of the same, with more downside action in US equities.

Tuesday, however, traders began to bid up the equities markets as concerns about the Brexit referendum results seemed to slowly diminish. Over the next four trading days we would see US equities gain back almost all of the losses that occurred on Friday of last week and this Monday.

US equities triumphantly finished the week with the largest one-week gain seen in 2016. US equities are now trading near their most recent highs, with the Dow Jones industrial average closing just under 18,000 and the Standard & Poor's 500 within striking distance of its most recent yearly highs.

The real question therefore remains if equities will be able to overcome considerable resistance that has been evident at these price points and move to new highs on the year, or will they come close as they have in the past but not be able to move past the technical resistance found at these price points.