The Daily Market Report: Both Technicals and Fundamentals Remain Supportive for Gold

USAGOLD/Peter Grant/05-19-17

The dominant trend in the gold market remains positive, despite the recent multi-week pullback. The yellow metal appears poised to end the week with a 1.8% gain, the biggest in more than a month.

The technical picture remains constructive with gold holding above key moving averages. The 50-day MA remains above the 200-day MA, sustaining the “golden-cross” that occurred late last week. When the 50-day moves above the 200-day moving average, it is typically interpreted as a rather bullish event, hence the name.

Gold is proving quite resilient today in the face of a rebounding stock market. Stocks were lifted by dovish FedSpeak, but heightened political and geopolitical risks are likely to continue underpinning the yellow metal.

St. Louis Fed President James Bullard acknowledged that both growth and inflation data have been pretty soft of late. “FOMC’s contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance,” said Bullard.

I have maintained that the primary goals of the Fed’s tightening into weak growth, is to prick the stop market bubble and to replenish the central bank’s ammunition in case of more pronounced growth risks and/or deflationary pressures. Minneapolis Fed President Neel Kashkari warned this week that, “Monetary policy should be used only as a last resort to address asset prices, because the costs to the economy of such a policy response are potentially so large.”

So what is the Fed to do at the June 13-14 FOMC meeting, given still relatively buoyant stocks and the worsening risk that the economy stumbles in the face of the considerable headwinds now facing President Trump’s fiscal policy agenda? Rate hike expectations have ebbed recently, but there’s still several weeks to go before the FOMC convenes.