It is very easy to panic when a price series migrates from exceptionally strong returns to volatile swings. I continue to believe that gold is consolidating rather than topping. This is not the first time it has ranged following a strong performance and it will not be the last, counsels Eoin Treacy, editor of Fuller Treacy Money.
I am not saying I am insensitive to volatility. The reality is gold tends to jump around when it is ranging. It will test everyone’s patience. That’s practically the definition of a range.
For now, gold continues to hold the psychological $4,000 level. The longer it holds these levels, the better it is for gold miners.
The price in British Pounds is also ranging and holding above the £3,000 level. The price action looks very similar when denominated in Euro, Swiss Francs, and Australian Dollars.
Right now, the swaps market is pricing a 50/50 chance of another Federal Reserve interest rate cut in December. But I see increasing signs of a slowdown in my daily life.
This does not extend to the more well-off sections of the population or the AI infrastructure plays. However, regular people are eating out less and travelling less, while delinquencies on debt are increasing. They need a rate cut. The challenge is the Fed is charged with fitting policy to the entire economy and cannot risk letting inflation get out of control again.
Meanwhile, the measures introduced following the government shutdown are positive for the US dollar. Forcing everyone to re-sign up for food stamps and refusing to extend the subsidies on Obamacare health plans should help to contain spending.
Whether that is enough to move the needle on the federal deficit is anyone’s guess. For now, the Dollar Index continues to steady, so the foreign exchange market is behaving as if these factors are positive.
