Trump’s war on the intelligence agencies could ignite gold prices
One of the most extraordinary backdrops of the already unique Presidency of Donald Trump is his war with his country’s own intelligence services with alleged ties to Russia being a focal point, which could trigger political uncertainty and that would favour gold.
For most of 2017 gold has been clawing its way higher with interest rates from the US Federal Reserve providing one of the biggest headwinds to its rise. Rising interest rates make holding gold, which yields nothing, more expensive (though gold can sometimes still rise in tightening monetary conditions if political conditions justify investors holding disaster insurance).
Trump’s latest run-in has been with the Federal Bureau of Investigation (FBI) when he sacked its boss James Comey apparently as he was deepening the investigation into Trump’s apparent former dealings with the Russian establishment.
However, firing Comey is far from the end of the matter with opposition politicians calling for an independent investigation and the acting head of the FBI Andrew McCabe promising to carry on digging into Trump’s past with Russia.
Should any concrete damming proof emerge about Trump, it could set the scene for serious political acrimony and maybe even his eventual impeachment – though that remains an extreme scenario and in practice very difficult to achieve given Republican domination of Congress. Nonetheless, Trump’s struggles with the intelligence services does have some eerie echoes of President Richard Nixon’s time and the Watergate scandal that led to his resignation (partly to avoid impeachment).
In other words, the scene might be set for a period of political instability and with that much of Trump’s ambitious economic rejuvenation agenda may get mired in political quick sand. The consequences of that could be a slower pace of interest rises and with the economy softening maybe even a reversal within 12-18 months. Another potential plus for gold longer-term.
Of course, this scenario is far from definite, but it is worthy of consideration by traders and investors as a controversial President locked in a battle with two very powerful intelligence agencies hardly bodes well for US political stability.
Should tensions escalate and some sort of proof does emerge then it could set the scene for a sustained gold rally.
TECHNICAL ANALYSIS: Gold cautiously positioned to move higher
Whereas the fundamentals might be starting to line up for gold, the techicals are more circumspect. Looking at a long-term chart it does look like gold bottomed out in December 2016 when it hit a low of USD 1122.96 per troy/oz.
On the plus side the most recent dip looks like it is levelling out and it didn’t test support around USD 1200.00. Also, the market is bouncing off the lower Bollinger band and from a near oversold position on the daily RSI – usually good signs that an upper move is in the wings.
Nonetheless, the low on the current wave of USD 1214.14 is very close to the low on the previous wave of 1195.03, which doesn’t spell a great deal of conviction about the recovery that started in December 2016. Also, the daily prices are below the 200-day moving average, which can be bearish. Bulls would therefore be advised to wait a little longer to see if prices do manage to nudge further up before getting on-board.
Resistance is at 1235-8, 1257 and 1269-70 with support seen at 1214-7, 1193-5 and 1181
By Justin Pugsley, Markets Analyst, MahiFX