Gold vs. the Fed
Trade war headlines have hijacked the market for the better part of the past two months, leading to the second-worst May performance since the 1960s — and a powerful snapback rally that has push the Dow to its strongest June performance since 1938.
But is Trump’s trade meddling about to pay off? Or is the White House setting investors up for disappointment?
Stocks jumped on Tuesday after Trump and Xi Jinping confirmed that they will get together for trade talks at the G20 summit in Japan later this month.
The fact that the lines of communication are open between Trump and Xi is a good sign since previous attempts to hash out a deal haven’t exactly worked out. As of today, Trump has hit more than $200 billion worth of Chinese imports with a 25% tariff, while taking aim at another $325 billion in goods.
Along with the tariff controversy, we now have the Fed’s rate decision to deal with this afternoon. Europe has already gone into “full dove mode” this week, Financial News reports, as European Central Bank president Mario Draghi said he’d turn to additional stimulus if the economy doesn’t accelerate and inflation remains low.
This puts the market in an interesting spot as we await today’s Fed statement. The S&P 500 has almost fully recovered from its May swoon. As of yesterday’s close, it’s less than 1% away from all-time closing highs.
As the S&P inches toward a new record, precious metals are starting to heat up.
Even as U.S. and Chinese officials make nice, precious metals continue to catch a bid. Gold has posted an incredible comeback this month. The Midas metal even topped $1,350 to push to new 2019 highs Tuesday, the culmination of a $70 rally that began less than three weeks ago.
Earlier this month, I showed you how gold had repeatedly failed to put together an extended rally despite the selloff in global equities and the escalating trade war. The trade war drama monopolizing the financial headlines should have been the time for gold to shine. Yet gold’s failure to gain any traction as stocks plummeted told us to stay away until conditions improved.
But it took less than three trading days for the Midas metal to flip the script at the beginning of June. Gold quickly marched $45 off last week’s lows, sparking the strong breakout toward its recent highs.
Now we’re seeing gold march higher alongside the major averages. It’s taking a quick break this morning and consolidating just below $1,347. But I don’t think this is the last we’ll see of this rejuvenated gold rally.
Finally, gold isn’t the only precious metal making moves this week.
Palladium has also found new life this month, surging off its May lows to approach $1,500 for the first time since March.
You might recall how palladium culminated a seven-month rally earlier this year by vaulting higher than the price of gold. But cracks began to appear in the once-invincible precious metal in early spring. The dam officially burst in late March when the price of palladium cratered almost 8% in one session to top off a double-digit decline from its highs.
As I mentioned during the peak of palladium’s melt-up rally, some analysts are quick to point out how shortages of the metal due to a worldwide crackdown on emission controls have played a key part in its rise. But I seriously doubt that the speculators chasing the palladium rally had emission control research on their minds.
As palladium’s sudden swoon accelerated, I told you a quick trip back to $1,200 wasn’t out of the question. Fortunately for the bulls, palladium never dropped materially below $1,300. Now it looks like it’s ready for another round of gains.