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USAGOLD/Peter Grant/07-20-17
Gold has extended to the upside, setting new 3-week highs and pressuring important technical resistance at 1248.08/1250.13 (100- and 50-day moving averages, 50% retracement of June/July drop). The yellow metal continues to garner support from the ongoing downtrend in the dollar, which has fallen to fresh 11-month lows.
While the ECB held steady on rates and maintained their extraordinarily accommodative guidance, optimism expressed by Mario Draghi suggests that a tapering plan may be laid out sometime after the August holiday. That prompted the euro to rebound smartly from intraday losses, pushing the EUR-USD rate to near 2-year highs.
Draghi: A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up
— ECB (@ecb) July 20, 2017
Despite the ECB’s massive efforts, they are struggling to generate inflation, just like the Fed. Now the earliest the ECB may take those first tentative steps toward policy normalization is probably September. As for the Fed, they may not tighten again until December.
The Fed can certainly no long claim that weak inflation is transitory. CPI has slowed now for four consecutive months. The following chart is of the Fed’s preferred measure of inflation, which shows a general decline since the first of the year, from shy of the 2.0% objective.
With the threat of tighter policy diminished, so too is at least one headwind for gold. They may mean that the yellow metal snaps out of the summer duldrums a little early this year, particularly if the 1250.13 level is cleared.
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