The Daily Market Report: Gold Remains Well Bid Near Recent Highs

USAGOLD/Peter Grant/07-19-17

Gold remains generally well bid, having recovered nicely from a modest overseas setback. With the dollar still on the ropes near 10/11-month lows, the yellow metal should remain underpinned.

Ace analyst Jim Rickards is already saying that the Fed has signaled a pause for September (see the earlier post). While December may indeed be the next likely opportunity for a rate hike, Rickards thinks the Fed will still start normalizing their massive balance sheet in September. That means policy will continue to tighten, even in the face of price and growth weakness, which may mean trouble later this year.

The result of applying an obsolete theory will be an economic crack-up, probably in the form of a recession. This will produce a 20% decline in stock prices at best, and possibly a 30% market crash before the end of the year. This will be caused by Fed tightening (whether by the policy rate or balance sheet reductions) into weakness. — Jim Rickards

China is the world’s top importer of crude oil and Russia is the world’s top exporter, the 2 are taking steps to convert payments into gold. This is a known fact. — Live Trading News

That’s good news for gold, from a demand perspective. However, additionally it’s bad news for the dollar, which should provide additional underpinnings to the yellow metal. China is apparently looking to get Saudi Arabia on-board for a similar deal.

As dollar hegemony continues to erode, foreign demand for U.S. Treasuries will drop. In an era where the U.S. continues to run massive deficits, one has to wonder how we’ll continue to finance our debt. Either rates will have to rise to attract more buyers, or the Fed will have to step in to fill the void. No matter how this plays out, gold should benefit.