Gold Daily: Trump Jawbones Gold Higher
interactive Chart HERE
Candidate Trump Meets President Trump and the USD swoons
Yesterday, in an interview with the Wall Street Journal, President Donald Trump said the dollar is "getting too strong" -- comments which saw the greenback lose ground, with Bloomberg’s Dollar Spot Index falling below its 200-day moving average. This was the impetus for another push higher in gold as the market blew through the $1278 resistance area. Our report here
Before that, Gold had finally come up to the 1275 area as technical, political worries, and bearish positions were overcome by benign interest rates, FED caution in raising rates, and other world tensions especially Middle East and North Korea, after the G-7. We already had 200 day moving averages positive, higher closes, higher open interest, and higher volumes all implying continuation. This,even with limited participation due to Passover, and Easter weekend.
Trump's statements were especially bearish for the USD in light of his need for a strong dollar to offset some of his other proposed policies. Specifically, a strong dollar helps offset the Border Adjustment Tax as well as his tax-cut proposals. Add into the mix that the Fed is itching to raise rates further as a counterbalance to potential fiscal stimulus and an "improving" economy, and you get a potential collapse in Trump's whole platform. Which leaves us with limited choices.
Bloomberg Agrees
The big news in markets today is of course Donald Trump's jawboning on the U.S. dollar. However you feel about the president's attitude towards the greenback, it's important to look at his currency stance through the prism of his economic policies. On the one hand having a stronger U.S. currency goes hand in hand with a stronger U.S. economy, but on the other, a weaker dollar would help boost U.S. exports, and potentially jobs. Ultimately they're interconnected and on that note, there's the potential for Trump's newfound support for a weaker dollar to run head-first into some of his other policy proposals. The Border Adjustment Tax, for instance, is basically a charge on imports into the U.S. that was, in theory, supposed to be partly offset by a stronger dollar. Meanwhile, income from the BAT was supposed to help offset Trump's planned corporate tax cuts, which once formed part of the foundation of the Trump rally. If we're not getting a stronger dollar then the BAT looks increasingly unlikely, and maybe the tax cuts do too.
Those choices being , issuing straight debt and/ or a QE4 program if the markets do not stabilize. Or worse; nothing is done and the "recovery" stalls. Take a look at the bond market post the last 2 rate hikes.Yields actually come in soon after the rates are raised. This possibly telegraphs that rate hikes are just not the way to go yet. Every post hike drop in bond rates implies "flight to safety" and a future undoing of the rate hike just implemented. in other words, rate hikes are cured by easing. Welcome to Goldilocks' hell.
Short term corrections aside, there is little standing in the way now of the low rate policy that we've had over the years remaining in place except for a Fed that wants to keep raising rates as the Government begins to unload its balance sheet of self bought bonds. Basically it is now Trump vs. the Fed. The US has painted itself in a corner financially. If it raises rates to help offset the unloading of QE assets it has purchased, it will kill the stock market. If it keeps rates low, the pain of the unwind will be that much worse down the road.
And Trump's ideas of BAT, and Tax cuts may be DOA without a strong dollar. President Trump does not like Candidate Trump's ideas it seems. And that is good for Gold.
Final Note
We called for $1320 gold in 6 months and frankly every time the market rallies without a pullback to shake off the hitchhikers, we cringe. But for now we will be cautiously content. Silver is jey for us, and we like that it is above $18.55 this morning. If that holds, then Gold pullbacks will be few and far between.
Good Luck
About:
The Soren K. Group of writers are currently 5 persons writing collectively. Backgrounds are professional, ranging from Finance to Banking to Real Estate. Topics include politics, markets, and Global Macro situations with a libertarian bent. Some posts are collaborative, some individually written.
Email: Sorenk@marketslant.com
Twitter: @Sorenthek
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