Gold has eased modestly after the White House revived expectations of at least a limited trade deal. However, gains accrued over the previous three sessions leave the yellow metal poised to close higher on the week.
Spot Gold Daily Chart
President Trump's economic adviser Larry Kudlow said yesterday that negotiations “are coming down to the short strokes.” Kudlow went on to acknowledge that communication with the Chinese is happening “every single day.” In addition, Commerce Secretary Wilbur Ross, confirmed this morning that there will be a high-level call today and that there will be a deal “in all likelihood.”
U.S. economic data released today were mixed but skewed to the negative in my opinion. This is tempering risk-on sentiment and underpin gold somewhat, particularly given that the dollar had fallen to new lows for the week.
Retail sales came in slightly better than expected, although the ex-auto number was a miss. Empire State Index fell to 2.9, below expectations of 5.0, versus 5.0 in September. The import and export price indexes were both negative for October.
Most importantly, industrial production fell 0.8% in October, below expectations of -0.4%, versus -0.3% in September. Industrial production has declined in three of the last four months, and six of the ten months seen so far this year.
Signs of a weakening U.S. economy may put a damper on the U.S. equities rally, although it's not happening yet. Perhaps investors haven't looked beyond the headline retail sales number yet. They should...
While testimony this week by Fed Chairman Powell reaffirmed that the central bank is on hold, more soft data into year-end may well revive talk of further rate cuts.
While gold is likely to close higher on the week, very little of last week's sharp losses have actually been retraced. The technical picture still looks vulnerable, but losses are seen as corrective within the longer-term uptrend.
“I am bullish on gold. I am not saying that gold is not going to go down because it is going to fluctuate, but people should have at least 10 percent of their portfolio in physical gold.” – Mark Mobias, founder of Mobius Capital Partners
Mark Mobias of Mobius Capital Partners seems to agree. He also said that he sees the price of gold doubling from the current level over the next ten-years. That would put gold pretty close to $3000!
Mobious's recommendation of a 10% allocation to gold is consistent with the low end of my suggested range. But as we noted in yesterday's blog post, research by Ryan Giannotto at GraniteShares suggests the efficient level to optimize one's risk/return profile is 35%!
Silver appears likely to close higher on the week as well, but the rally has failed to impress. Technically, a bear flag seems to have formed and gains were limited by the 9-day moving average.
Spot Silver Daily Chart
One might think that trade relief would provide some support to a hybrid metal (industrial and safe-haven) like silver, but the summer rally was driven by safe-haven buying. A further unwinding of that trade may be necessary before the white metal can truly find support.
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