(7/1/2019) - Trading Lab Morning Email
Gold futures are down about 1% ($1397) as I write these words after a weekend in which President Trump pulled out all the stops in order to create headlines, soundbites, and photo ops.
Technically speaking gold is still holding above the first downside support level ($1392) and it is on the verge of forming a H&S bottom which will target a gap fill ($1413) on a breakout above $1400.
What is the net tangible result of the weekend's activities in Japan and the Koreas you ask?
I can't think of one except we are likely to get continued periodic rumours and tweets about how "well the talks with China are going". There is still no path to a trade deal with China, however, there is a path to not increasing tariffs and continuing to muddle along while talking tough. Make no mistake, this is the path the President will take.
So with China and the US talking again, and Trump posing for pics with Lil' Kim at the DMZ is it time to dump gold?
I don't know about you but my reason for owning gold never had anything to do with trade tariffs or peace with North Korea. In fact, if either of those situations got out of hand it would simply be the icing on the top of an already sweet cake (thesis for owning gold).
In less than an hour we will get the ISM Manufacturing Index for June which could confirm the sharpest economic slowdown since 2008/2009. The Fed is cutting rates in two weeks because inflation is significantly undercutting its 2% inflation target (the stuff the Fed focuses on has inflation running at about a 1.4% clip right now). The President of the United States wants a weaker dollar and lower interest rates. I think he will get what he wants from the Fed as his desires align with the Fed's desire for stronger inflation.
The price of money is getting cheaper and gold will rise in fiat terms as central banks around the globe open the monetary policy easing spigots. The fact that a sustainable US/China won't get done anytime soon, Iran and the Middle East are powder kegs waiting to blow, and North Korea's leader is playing with Trump in order to legitimize his regime (and probably just because he thinks it's funny). All of that stuff is the icing on the cake of any bull thesis for owning gold.
Buy gold when the price of money is declining, sell gold when the price of money is rising. Rinse, repeat.
While gold is probably in for some further consolidation between $1380 and $1440, the monthly chart helps to illustrate the bigger picture technically speaking and the significance of June's gold breakout:
Gold (Monthly)
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