The Fed concludes its May meeting today with the Street only looking at a 4.8 percent chance of a rate hike.
After the poor first quarter GDP number, I assume there really isn’t much to talk about, so they might as well take out the lunch menu and order out.
No press conference today from the chairwoman, so we just have to wait to see what the six paragraph
Gold knocking on the door of the 200-day spot moving average at $1,250.80 level and I suspect if that figure is taken out, some stops will be executed. Levels of spot below are soft at $1,248 and not
until $1,232 do we get to see a good level of support.
Now on to politics and the economy.
What do my two-year old grandson and the President of the United States both have in common? They both like to play with bubbles.
That is exactly what President Trump has created since he was elected President. A equity market bubble.
In order to make bubbles, you need to take out the wand and dip it in the bottle and blow to achieve your end result…bubbles.
Well it seems that the President’s “Promise Wand” and bottle of soap is running dry.
Let’s list everything that was put on the table to make “America Great Again”.
- 3 to 4 percent economic growth.
- A repeal of Obamacare
- Corporate tax cuts from 35 percent to 15 percent (Does anyone truly believe that by reducing the corporate tax rate here in the states will create new jobs and bring back the trillions of dollars held overseas from the likes of Apple and others? Or do you believe it will pad the pockets of Wall Street CEO’s and have no trickledown effect to middle America?)
- A “tremendous” individual tax cut for the middle class (How so Mr. President, if you are proposing to eliminate deduction for state income tax, property taxes and local income taxes from the federal return? And you also you want to tax earned income on individual 401(k) plans at 15 percent to partially offset the corporate tax break you are giving? And Monday you said you would be open to a federal gas tax? How would that tax help small businesses?)
Of course, I can’t be all one sided as I truly believe the only thing keeping the equity bubble from bursting has been decent corporate earnings. True, this is a big factor, but low interest rates still are the main reason the equity market of late is doing so well.
But there are two promises that can derail the equity market from its march forward and they are:
- The Fed promising higher interest rates this year
- The relentless pressure from the Democratic party and some Republicans to stop dead in its tracks anything the President puts on the table.
Where does this leave our precious metal markets?
The price of gold seems to be locked in a trading range, slipping a bit, but there are two factors, one immediate and the other over time that can have a big impact in the price.
First North Korea. This time bomb is something to be concerned with, as if anything ignites, the price of gold should rally big and the equity markets I suspect will retreat in a heartbeat. Second with a poor first quarter GDP figure it might delay the Fed from raising rates at the next few meetings unless the economy improves. The equity market will be patient, but if second quarter numbers come in weak again and the President’s agenda stalls, watch out below. So we wait and see how that pans out, but the longer it takes the better it is for the price of gold in the long run.
According to the latest commitment of traders report, it seems the longs are hanging around awaiting the next move upward in the price of gold. I, like them, believe it’s coming and it’s just a matter of time. One just needs some patience (maybe a lot of patience) as we might trade a little lower, but I don’t expect the rug to be pulled out on the price of gold.
Have a wonderful Wednesday.
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