Britain’s No-Deal Vote, and Dovish Fed Boost Gold Pricing

March 13, 2019 - 5:40pm

 by Gary Wagner

Dollar weakness and bullish market sentiment have moved gold prices substantially higher today. As of 3:30 PM Eastern standard time spot gold is currently trading at $1310.80. The current price of spot gold reflects a net gain of $9.40 on the day.

According to the KGX (Kitco gold index), $6.25 of today’s gains is the result of a weakening US dollar, with the remaining gains of $3.15 attributed to traders bidding up gold prices. Dollar weakness was responsible for twice as much gain (+$6.25), as the price move attributed to bullish market sentiment (+$3.15).

Gold futures basis the most active April Comex contract is currently fixed at $1311.30, up $13.40, which is a net gain of 1.03%. At the same time the US dollar index is currently down by .41%, and fixed at 96.500.

Simple math reveals that in the futures market today’s gains are largely the result of bullish market sentiment accounting for roughly 60% of the gains today, with the remaining 40% directly attributed to dollar weakness.

The difference between spot gold and gold futures pricing reveals that the market sentiment is extremely bullish and optimistic about continued higher pricing in gold in the future.

One of the largest factors contributing to today’s move in the U.S. dollar, the Euro dollar, and the British pound is the uncertainty about how Britain will leave the EU. After yesterday’s rejection of Teresa May’s revised proposal, today the U.K. Parliament rejected a No-Deal hard Brexit in an extremely close vote of 312- 308. Today’s rejection of a hard exit was extremely bullish for both the British Pound, and the Euro dollar.

Tomorrow the British Parliament will vote on whether or not they will seek an extension of the March 29 deadline. However, the fact that a hard Brexit was voted down today was extremely bullish for both the British pound and the Eurodollar, and therefore bearish for the U.S. dollar.

Once again, we see favorable risk-on market sentiment running in tandem with bullish market sentiment for the safe haven investment class. This is due to the fact that both markets are moving higher on the perception that the Federal Reserve will continue to keep interest rates where they are.

According to Reuters “U.S. stocks rose broadly on Wednesday with the S&P 500 index hitting a five-month high, after latest data backed the Federal Reserve’s patient stance on future interest rate hikes.”

The combination of a dovish U.S. Fed, and Britain’s inability to pass legislation on how they will exit the European Union continue to be highly supportive of the precious metals complex as a whole. These fundamental factors will continue to have a bullish influence on gold pricing as long as they continued to be in play.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer