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The Daily Market Report: Gold Up 1.7% This Week as Dollar Slides


Gold remains generally well bid after setting fresh 13-month highs in overseas trading. The yellow metal is being supported by lower U.S. yields, a weaker dollar and persistent political and geopolitical uncertainties.

Fed uncertainty is certainly playing a role as well. With the resignation of Stanley Fischer, it seems increasingly likely that Janet Yellen will not continue on as Fed chair. Her direct challenge of President Trump’s assault on Dodd-Frank regulations at Jackson Hole suggests she may no longer want the job.

Suddenly too, there are some cracks in the Fed’s messaging on persistently low inflation. FedSpeak in recent years has steadfastly maintained that these price pressures are transitory. Yesterday, NY Fed President William Dudley conceded that “fundamental structural changes may also be playing a role.”

If more than $4 trillion in asset purchases — dating back to December 2008 — fails to achieve your stated goal of 2% inflation, yeah it might go beyond transitory. The time to acknowledge that and preserve some semblance of credibility is long-past.

Doubts about another rate hike this year are on the rise. Fed funds futures put the probability of a December rate hike around 37%. Additionally, the timing of the balance sheet normalization has been called into question.

Treasury yields have tumbled in recent weeks, dragging the dollar lower in the process. As we’ve noted in recent weeks, there is very little in the way of support below the current market level. As the greenback continues to slide in value, it’s going to take more dollars to buy an ounce of gold.

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