The Daily Market Report: Gold Defensive on Firmer Dollar and Stocks

USAGOLD/Peter Grant/06-19-17

Gold is edging lower, weighed by a firmer dollar and revived risk appetite, which has driven stocks higher. However, a number of factors continue to offer fundamental underpinnings to the market.

While NY Fed President Dudley reiterated today the optimism expressed in last week’s FOMC statement, one has to wonder if the central bank can really continue tightening with the anticipated fiscal stimulus stalled in Congress.

Senate republicans are acknowledging they are not even close to a deal on healthcare reform. “That impasse has held up work on a budget resolution, which is necessary to move tax reform and the annual appropriations bills,” according to The Hill.

GOP policymakers are reportedly considering cancelling the August recess in the hope of breaking the log-jam. However, the staunch political opposition and the ongoing investigations will continue to generate significant headwinds to the so-called reflation trade.

If the President’s agenda is well and truly dead in the water, and the Fed is committed to their tightening agenda, it seems like the stock market in particular is underestimating the risks to growth. “This is the most hideously overvalued market in history,” said David Stockman in an interview last week. Stockman sees potential for a 35% correction in the S&P 500.

“You want to pay twenty-five times earnings going into a world where the Fed yesterday said ‘we’re going to shrink the balance sheet by $2 trillion over the next several years?’ Where we have a government that is in total chaos. A president that they’re trying to unseat. A debt ceiling that can’t be raised. A tax bill that will never pass…” — David Stockman