Gold has had a pretty good couple of days. It is up 4 of the last 5 sessions and has made back more than 50% of the big down move on May 15th after the announcement of a U.S./North Korea summit. Really that tells you most of what you need to know in terms of drivers for gold these days. The dollar strength is one of them helped along by weakness in the other major currencies which we wrote about here and here. This inverses relationship can only really be broken by geopolitical turmoil and President Trump gave gold a bit of that when he canceled the aforementioned summit. He also warned of potential new tariffs on all imported automobiles being sold in the U.S., which could weaken the dollar with the implication of slower global growth and a more dovish Fed, thereby strengthening gold. There is really nothing else however that can push gold higher and first break it back into the channel it had been in for all of 2018, then break it above said channel. The precious metal has spent most of the last 2 years below this channel after breaking down in 2016. Lower prices follow if it can’t get back into the channel, which will be tough as it is also bumping up against the 200-day moving average. (see chart).
In November, mid-term elections take place in the U.S. and currently there is an expectation of a “blue wave”, which could turn the House of Representatives and possibly the Senate from Republican majorities to Democrat majorities. The Senate math doesn’t seem to work for the Democrats, but the House looks possible, not just from the evidence of recent turnout at the primaries but from history. Often when the executive branch switches from one party to the other and the President’s party holds both the House and the Senate, the mid-terms cause a party switch in the House of Representatives. If this happens, President Trump will be handcuffed in many initiatives he is still working towards. Based on what we’ve seen so far, he will try to get more and more done via executive order, and the roadblocks will frustrate him. This will cause the dialogue to get more heated and then gold can rally. Until then, gold is stuck and will likely fail to even get back into its old comfort zone of that sideways channel. Lower for longer seems to be the play for gold. Unless we get a weaker dollar or a war; trade or otherwise.