Gold pricing has benefited from recent geopolitical and economic events and has gained just over $160 per ounce since the beginning of this year. In fact, gold has gained just over 11% in 2019* (* a correction from yesterday in which I stated that gold had gained 8.8% year to date).
There are multiple events and actions which are attempting to reignite the global economic expansion that recent data suggests is slowing down. The Federal Reserve along with many global Central Banks have decisively adjusted their monetary policy to be much more accommodative and dovish, similar to the action seen during the measures used to pull the global financial markets out of a recession in 2008.
The Fed and the global Central Banks took interest rates to near zero and provided not only inexpensive capital for corporate expansion, but adjusted liquidity so that investment capital was flowing freely. This economic tool was effective in reigniting economic expansion worldwide and ending the recession.
As they say “all good things must come to an end”, and that was true for the dovish demeanor by the Fed and global central banks. The Federal Reserve began to move towards a monetary policy that was less accommodative by raising interest rates and tightening the money supply as they normalized their policy through a series of rate hikes as well as the partial liquidation of the massive balance sheet that the Fed had accumulated during the period of quantitative easing. Global central banks began to mimic these actions as they also began to raise rates and remove liquidity from the financial markets.
It was not until the current trade war between the United States and China began to have a noticeable and sizable effect which slowed global economic growth that the central banks realized that a pivot would be necessary and a major dovish monetary policy would be used once again to reignite economic growth.
It is this key reversal in the monetary policy of the central banks was is a major component of the recent dramatic rise in gold. Add to this the uncertainty created by geopolitical hotspots currently include Iran and to a much lesser degree North Korea that changed market sentiment in gold to the bullish demeanor that is currently in play.
The financial markets have already begun to factor in a series of rate cuts the first of which is expected to be an ounce and implemented this month during the Fed’s July FOMC meeting.
If They Won’t Join You, Nominate Ones That Will
According to Reuters, “U.S. President Donald Trump announced on Tuesday the names of two nominees to fill vacant posts on the Federal Reserve Board, after two of his earlier choices withdrew from consideration in the face of criticism.” In a tweet the president said that he will nominate Christopher Waller, and Executive Vice President at the federal reserve bank of St. Louis, and Judy Shelton, the U.S. director of the European bank for Reconstruction and development. Both of these nominees are considered to be much more dovish than other members at the Fed, and Judy Shelton is actually an advocate for the U.S. to return to the gold standard. If nominated these two new board members the collective makeup of Federal Reserve members will move substantially to a more dovish demeanor.
All of these factors together should continue to fuel the bullish market sentiment that has been prevalent in gold throughout 2019. Our technical studies indicate the probability that gold prices will move is high as $1500 this year. Currently we see support in gold at $1400 with resistance at the recent highs achieved last week at $1442.
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Wishing you as always, good trading,