Gold firmed in late trading yesterday to close higher on the day and we're seeing some modest upside follow-through today. The yellow metal is trading about $20 off Tuesday's 13-week low.
Gold garnered some support from tempered risk appetite after President Trump failed to reinforce the recent optimism about a trade deal with China in yesterday's speech before the New York Economic Club. Mr. Trump said that even the much talked about Phase 1 deal was contingent on it being a deal for the U.S. and that China would face "substantially higher tariffs" if a pact is not struck.
The increasingly violent protests in Hong Kong are assuredly impacting negotiations on the trade front. A State Department spokesperson said yesterday that “The United States is watching the situation in Hong Kong with grave concern.”
The official statement went on to urge Beijing to "honour the commitments it made in the Sino-British Joint Declaration." The Chinese Foreign Ministry responded, warning the U.S. to "stop using Hong Kong to interfere in China's domestic affairs."
Mildly warmer than expected U.S. inflation data is offering some additional support to gold this morning. Data from the Bureau of Labor Statistics showed that CPI rose 0.4% in October. That was slightly higher than the 0.3% rise that was expected, versus an unchanged reading in October. Annualized CPI ticked up to 1.8%.
Fed Chairman Jerome Powell is speaking before the Joint Economic Committee today. His prepared remarks show that he continues to look for moderate economic growth and low inflation. However, he does highlight global growth risks and ongoing trade tensions.
After three consecutive interest rate cuts, the Fed is widely thought to be on hold. President Trump took the opportunity of yesterday's speech to once again lambast the central bank for being too tepid with regard to easing policy.
While the correction in gold may not be over yet, I do indeed see it as a correction. Julius Baer analyst Carsten Menke agrees. "Current weakness represents a buying opportunity in our view,” said Menke.
Frank Holmes, CEO of U.S. Global Investors also noted in a Kitco interview yesterday that investors need to add more gold to their portfolios.
As we've noted, this sell-off is being driven by outflows from the ETFs and liquidation of longs in the futures market. When the paper market gives the gift of lower prices, physical buyers should take advantage.
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