Gold Holds as the Dollar Weakens 

Commentary for Tuesday, Feb 13, 2017 – Gold closed up $3.90 at $1328.10. Gold is firm today as traders try to figure out just how likely it is that President Trump gets everything he is looking for in the way of monetary expansion. His latest budget proposal includes the kitchen sink – infrastructure – military – tax rebates to the working folks – wow. This is not surprising – this president thinks big and deficits of a trillion dollars should not surprise. Whether he can get all this through Congress remains to be seen – but the dog and pony show is amazing and has already begun to rearrange the furniture.

Trump’s big talk has at least temporarily derailed the hawkish FOMC talk of a rate hike in March – the probability moving from better than 80% to something approaching 50%. This was not all Trump spending talk – the huge drop in the DOW scared everyone and gold did pick up some safe haven buying – but not much.

Firmness in prices of late – the market holding above $1300.00 was also helped by increased seasonal demand (China and India).

But for now gold’s prime mover remains the dollar. Our President is still relatively new and still full of surprises. His spending programs are not typical for a Republican and do not adhere to the typical Keynesian credo – spend when business is slowing and work on deficits when times are better. Trump proposes spending more money than any president in history at a time when the US economy is doing just fine – no recessionary forces to be seen.

The old playbook would say that this financial heresy is guaranteed to push the dollar lower over time and so support gold bullion. Just how this will work with a hawkish FOMC is beyond my paygrade but the show should be interesting to watch and fireworks will be featured.

Today the Dollar Index moved from 90.16 through 89.64 – strictly on Trump rhetoric but this is a short term picture at best. Tomorrow we will get a look at the latest consumer price index. I don’t expect much in the way of inflation news but you never know these days. A spike here would certainly refocus this conversation away from Trump and back to the FOMC and higher interest rates on the shorter term. This would push the dollar higher and gold lower.

Like I said – if you mix together the pushing of a huge Trump budget with an indecisive FOMC and add a little drama along the way you can expect at least fireworks.

From a technical standpoint gold sees a great deal of overhead resistance between $1300.00 and $1400.00 and the real physical market has typically lost momentum in this region. So I would not get too excited over this latest wrinkle (Trump spending talk) in gold’s price picture.

But be wary of the rising bottoms pattern which began in early 2016. This has been a tortuous path – nothing spectacular and some traders believe rising interest rates will turn this potentially interesting patter into just another sideways – waiting period – much like we have seen since 2013. But if gold gets its head back into the game and ignores FOMC threats pricing will likely stay within this higher range.

Wishful thinking – perhaps but keep in mind that President Trump likes spending big – really big and all those “tax” savings predicted by the Republicans are based on what they think will happen over the next decade – sounds good but not the most reliable way to bet the farm.

Public reaction in the physical market has been mixed – quiet this morning and by noon you could not get enough help at the counters. The mix was across the board – more than a few large sellers of both silver and gold most of which were bought up within a few hours.

This from Zaner (Chicago) – “With the dollar ranging down sharply and reaching a four day low to start early today the four day high in gold and silver was to be expected. Clearly the gold market is discounting news of strong profit gains at South African gold miner Harmony gold in its first half perhaps because of talk of positive Indian jeweler demand overnight. Fortunately for the bull camp the market is not facing definitive fears of higher rates again as Treasury prices have rebounded significantly from the prior session’s low. It is also impressive but not surprising to see the gold market divergence with equities as the temporary return of broad-based deflationary commodity conditions, brought on by massive stock market losses, has apparently passed for the time being. Another issue that the gold market appears to be discounting is the apparent tilt toward improved relations between North and South Korea. It is possible that gold is drafting a minimal amount of support from news that South Africa’s ruling party the ANC has decided to oust its head of state as that could result in a threat to South African gold production. While the US economic report slate today will once again be thin the trade continues to look forward to the Wednesday morning CPI report as anything hot from that report could bring back the dominating fear of rising rates from the Fed and a strengthening dollar. At least in the near term there might be little in the way of resistance in April gold until the $1334.80 level.”

Silver closed down $0.04 at $16.51.   Gold Holds as the Dollar Weakens 

Platinum closed up $2.90 at $972.70 and palladium closed up $4.55 at $984.65.

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