USAGOLD/Peter Grant/06-09-17
Gold is poised to close lower on the week, after eking out a new high for the year on Tuesday. Yesterday’s raft of risk events drove safe-haven interest early in the week, but now that all that is behind us, some of those haven trades are getting unwound.
Make no mistake though, risk still abound, on the economic as well as the political and geopolitical fronts. In fact, some of the events that markets seem to be considering safely behind us have generated additional associated risks.
The ECB rather significantly downgraded their inflation outlook through 2019. That is consistent with our Fed’s own rising level of concern about waning inflationary pressures, which undermines one of the central bank’s key tenets for raising rates in the first place. And yet, the Fed is (nearly) fully expected to raise rates further next week, which will arguably amplify price pressures even more.
The Fed’s forward guidance and economic projections are going to be important next week, particularly as they pertain to inflation. Hints of dovishness, whether ascribed to May’s labor market weakness or heightened worries about inflation, could add further weight to the dollar and support for gold.
While the Comey testimony was largely in line with expectations, it did dissipate the cloud over the administration. If anything, President Trump’s political opponents seem to have redoubled their calls for further investigations and hearings.
With that ongoing distraction, there is considerable doubt as to whether the President will be able to meaningfully advance his economic agenda. That suggests that the stock market in particular, may be vulnerable to a retracement of its post-election gains.
When Theresa May called for the snap-election back in April, she declared that “Every vote for the Conservatives will make me stronger when I negotiate for Britain with the prime ministers, presidents and chancellors of the European Union.” The results of the election now in fact put her in a decidedly weaker position. Her conservative party lost 12 seats in Parliament and their majority. The opposition labour party on the other hand gained 29 seats.
The resulting hung Parliament is going to make governing in general more problematic. They may have to entirely rethink their Brexit negotiating strategy, with just 10-days before those talks are slated to begin. I suppose there is some risk that they won’t even have formed a government by then, amid rumblings of possibly another snap-election.
Arguably there is even more uncertainty now than there was on Wednesday. On top of that, legendary investor Jim Rogers is predicting the “worst crash in our lifetime” sometime within the next year-and-a-half!
Rogers suggests such crashes start where you’re not looking. “It could be an American pension plan that goes broke,” said Rogers as a possible example of a flashpoint. I think he would concede that any of the aforementioned situations are potential flashpoints as well.
I encourage gold investors to be proactive rather than reactive. If Rogers is right, and another major market crash is coming within the next 18-months, gold may get really expensive, real quick. That is, if you can get it at all.
