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USAGOLD/Peter Grant/07-18-17
Gold extended to the upside, clearing another key technical hurdle and establishing new 3-week highs. The dollar index tumbled to pressure 11-month lows on further weak inflation data and news that the Senate healthcare legislation was declared dead.
The yellow metal has now retraced more than 38.2% of the June/July decline have now been retraced. Gold is also back above the 20-day moving average. These gains return considerable credence to the underlying uptrend that has dominated so far this year.
Import and export prices both fell in June, providing further evidence that disinflation pressures are building once again. On top of that, the death of healthcare reform — and the reported GOP aversion to an all-out repeal — may signal that the broader Trump economic agenda is terminally bogged down.
With hopes for fiscal stimulus dimming significantly, markets are likely to shift their focus back to the Fed and beg for more monetary stimulus. A rate hike pause in September would be the first step along that path.
Beyond that, if price and growth risks persist, the Fed may have to reverse course and start easing policy. That would put further pressure on the dollar as interest rate differentials narrow, which in turn would lend further support to gold.
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