The Daily Market Report: Gold Firms as Fed and ECB Lean Dovish

USAGOLD/Peter Grant/08-17-17

Gold remains generally well bid after once again nearing the high for the year at 1296.06 in earlier trade. Last week’s high at 1292.05 provides an intervening barrier.

The yellow metal rebounded strongly after the FOMC minutes from the July meeting revealed heightened concern over dimming inflation prospects. Former Fed insider Danielle DiMartino-Booth categorizes the minutes as “very dovish,” which further erodes the prospects for another rate hike this year. Ms. DiMartino-Booth added that the Fed has pulled back from recent hawkishness and “the bond market should sit-up and pay attention.” So too should gold.

The more dovish than expected Fed, put the dollar back under pressure yesterday, but the retreat was short-lived as today the ECB minutes revealed their own concern about euro strength (or should we say dollar weakness). If the ECB adopts a more dovish tone as well, it might be considered an escalation of the long-simmering currency war.

If yields turn lower and the dollar resumes its downtrend — ultimately negating the 91.92 support level in the dollar index from May of 2016 — it may well prove the impetus to finally push gold definitively back above $1300. With little in the way of support below 91.92 in the dollar index, gold could really run if that level gives way.

We’ve noted the headlines in recent weeks proclaiming that household debt had exceeded the previous record high set in 2008. We also are keenly aware of the impending debt ceiling debate that will rage once Congress returns from August recess. Debt is an anchor around the neck of the economy that is unquestionably a contributing factor to the weakest recovery since the 1930s.

A Bloomberg article warns that we shouldn’t be shocked if consumers run out of spending money:

Don't be shocked if consumers run out of spending money https://t.co/hf8kctYZIm pic.twitter.com/L1hSrjXj64

— Bloomberg (@business) August 17, 2017

We should certainly be concerned, as 70% of U.S. GDP is derived from consumption. For all too many U.S. families, the “money” runs out shortly after the paycheck arrives. Hence they are saving less and borrowing more. The death knell for the U.S. economy will ring when they run out of credit . . . or interest rates rise and they can no longer service the existing balances.