Is Gold Signaling Plaza Accord 2.0?

By Bryan Rich

July 18,  5:00 pm EST

With 12 days until the July Fed decision, the Trump administration has attempted to dial DOWN expectations of a China trade deal coming anytime soon.

And today the Fed marched out two Fed officials (one of which is the vice chair) ramping UP the rhetoric to telegraph rate cuts at the end of the month.

After the Fed comments, the market swung from expectations of just a 25 basis point cut to a near 80% chance (at one point in the day) of a 50 basis point cut coming on July 31.

That was good enough to drive a technical breakout in gold. Gold finishes the day just shy $1,450. That’s the highest level since mid-2013.

Let’s take a look at the chart ….

So, we’re about 32% away from the 2011 highs. Those highs were, of course, induced by fears that QE would lead to runaway inflation. That is, the gold trade was a hedge against inflation. Inflation didn’t materialize. And the price of gold was nearly cut in half over the next few years. After all, following massive global QE, deflation remains the bigger risk.

But now money is moving into gold as a hedge against global currency devaluations. In both scenarios, the gold trade is about hedging against inflating away global buying power.

With the above in mind, remember we’ve discussed the prospects that this trade war with China may end with a grand and coordinated currency agreement— perhaps with a big depreciation of the dollar, similar to the 1980s “Plaza Accord.”

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