The gold market continues to show signs of strength even with some bumps in the road this past week. Ongoing geopolitical issues remain a driving force behind risk aversion and desire for perceived safety, and numerous U.S. domestic issues are also likely playing a major role.
The Trump administration continues to be affected by the Russian election interference investigation as well as the seemingly constant state of chaos within the white house. After hiring hedge fund manager Anthony Scaramucci as his communications director, President Trump received the resignations of both Press Secretary Sean Spicer as well as Chief of Staff Reince Preibus. Both men were unhappy and disagreed with the President’s decision to bring Scaramucci-commonly referred to as “the mooch,” –into the administration as communications director.
Scaramucci didn’t last long, however. Following a profanity-laced rant against leaks and some of the President’s advisors, freshly sworn in Chief of Staff John Kelly recommended Scaramucci be fired. Surprisingly, the President followed his recommendation.
Further shakeups within the white house could also potentially be seen as the President has made his displeasure with Attorney General Jeff Sessions very clear.
These examples illustrate the general sense of disorder coming from the white house, and the American people appear to be tiring of it quickly at this point. The “Trump trade” appears to have run its course, and without the passage of any major tax or fiscal spending legislation investors may become increasingly happy to take money off the table.
These issues have had a significant impact on the dollar index as well. The greenback has lost all ground gained since Trump was elected, and could potentially be setting up for a fresh, significant leg lower in value. The lack of major legislation as well as the ongoing lack of inflation could keep the dollar on the defensive, and the Fed may be able to remain on the dovish side of the ledger regarding monetary policy in light of these circumstances.
Looking abroad, North Korea and its nuclear weapons program will remain a major area of focus for the U.S. and its allies. Another recent ICBM missile test by the nation has furthered the idea that the nation may be capable of hitting the U.S. mainland with a nuclear weapon. The test brought a U.S. response this time, with American bombers flying over the Korean Peninsula in a show of force.
Although diplomacy is still possible, it would seem that the window for a peaceful resolution is closing. With the U.S. unwilling to tolerate a North Korean nuclear threat, the heat on the nation could be turned up economically through further sanctions and isolation. The ongoing saber-rattling may keep gold supported in the meantime.
Gold investors will also be paying close attention to global equity markets. The broad market S&P 500 is starting to show some signs of topping. If or when the stock market reverses course, it is quite plausible that a significant amount of investment capital finds its way into gold. Gold could be getting ready for a multi-year cyclical bull market as stocks get ready for a protracted bear market.
Recent action in gold has been bullish, but the yellow metal will need to break its recent highs to attract fresh buying. Conversely, if gold is not able to maintain trade in higher territory in the near-term, frustrated bulls may sell sending gold back to the lower end of its recent range.