Dollar, Interest Rates, and Risk-On Sentiment Weigh Gold Down
U.S. equity markets had one of their strongest showings today since September 20. The Dow Jones Industrial Average closed near all-time highs today after gaining 192.90 points and closing at 26,651.21. This, coupled with respectable gains in the Standard & Poor's 500, has confirmed that the strong risk-on market sentiment which has been in place since April of this year continues.
Today U.S. equities continued their historical climb with tailwinds resulting from a trade agreement between the United States, Canada, and Mexico.The newly re-named "U.S.-Mexico-Canada Agreement" reduces one of the uncertainty factors in the global financial fabric and, as such, gave U.S. equities a moderate upside boost.
According to economists at the Goldman Sachs Group Inc., "Of greatest importance for financial markets is the reduced uncertainty that a trilateral agreement poses, particularly for Canada. Releasing the trilateral draft by the self-imposed soft deadline ensures that Congress considers a trilateral deal, rather than two bilaterals."
Last week's FOMC meeting resulted in a widely anticipated rate hike. This marks the third occasion this year in which the Federal Reserve has raised rates by 25 basis points (1/4%). Since 2015, the Fed has been actively moving its monetary policy from an accommodative stance to a neutral position and, as such, has raised rates a total of eight times, putting the Fed funds rate at 2.0% to 2.25%.
The FOMC statement released last week also indicates a likelihood that the Fed will raise rates one more time this year in December. The CME's FedWatch tool is predicting that there is a 79.3% chance that the Fed will raise rates by 25 basis points, with a 2.1% probability that they will increase rates by 50 basis points in December.
Rising interest rates and strong economic growth have resulted in dollar strength, and it has been dollar strength that has put dramatic pressure on gold and silver pricing.
These three factors: a strong dollar, rising interest rates, and a strong bull market in equities have, and continue to weigh heavily on gold pricing. As a result, we have seen gold prices decline $177 since April of this year when gold traded to the yearly high of $1,369.
It is unlikely that gold will have any substantial rebound and rally if these three factors continue to be the dominant features in market sentiment.
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Wishing you as always, good trading,
By Gary WagnerContributing tokitco.com
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gary@thegoldforecast.comwww.thegoldforecast.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.