The US$1,300 range around which gold traded for much of February and March is now a thing of the past. The most recent dip, to around US$1,280 per ounce, has many analysts looking once again more to the downside than to the up, with some citing US$1,260 as the next support level.
This rapid change in trajectory comes at a time of renewed strength in the US dollar, which earlier in the year had traded weaker on the Fed’s new-found dovishness in regard to interest rates.
But some things are hard to shake off, or to put it another way: is the Fed's change of heart too little to late? Mr Trump approves of the Fed’s new stance, but at the same time he also says a U-turn should never have been necessary. That in turn may be the polar opposite of what the policy wonks inside the Fed are thinking themselves.
Because the US economy continues to power ahead, something for which Mr Trump is not slow to take credit, and that in turn should warrant some form of monetary tightening to prevent overheating.
According to any conventional economic analysis, that is.
But we do not live in conventional times, even allowing for Mr Trump. The US, and the world at large, is still living in the shadow of the global financial crisis of 2008, and it’s the policy responses to that which are continuing to challenge established economic orthodoxies.
Cheap money during a time of economic prosperity is precisely what got the world into such a mess last time around. But the problem since has been that money has consistently been cheap, through good times and bad. The Fed’s plan to increase rates last year was widely recognised as a sign that at long last markets and central banks were returning to some kind of economic normality.
Now though, the Fed’s renewed caution indicates that that was all so much wishful thinking.
Markets, of course, are like goldfish, with their short memories. Initial alarm at the Fed’s change of tack is now forgotten and new highs are being reached. And paradoxically, because the financial health of much of the rest of the world is now in question, investors continue to pile into the dollar as the premium financial asset worth holding.
That’s bad for gold, at least for now.
In the medium-to-longer term though, it could be good.
We are aleady getting a foreshadowing of things to come. Germany is close to stagnation, Italy is in recession, the UK is mired by Brexi and uncertainty continues to swirl around the outlook for China.
In this context the dollar looks a good bet compared to any of the alternatives, particularly with the strong growth the US is enjoying set to continue into next year. After that though, the outlook becomes more opaque.
Optimists will argue that China’s stimulus is beginning to have a meaningful impact, and that growth above 6% remains sustainable. Pessimists will refer you to unsustainable levels of Chinese corporate debt, growing concerns about the viability of the Belt and Road initiative, and the absence, so far, of any significant trade deal with the US.
Against that economic backdrop, and if the US is allowed to continue to spiral into growth while riding on easy money, then when the inevitable downturn comes it may take the form more of a crash than what is euphemistically termed a soft landing.
In that eventuality, with much of the rest of the world already verging on zero growth, it will be left up to China to sustain the momentum in the global economy. But without strong demand from the US that will be impossible, and so too will be the 6% growth rate that China is so keen to hold onto.
Holding the dollar won't look such a good then.
Indeed, if those circumstances do play out then the current dip in the gold price that we are currently witnessing may end up retrospectively looking like a serious buying opportunity.
The Chinese know it themselves – their central bank has been a major buyer of gold this year, having purchased 32 tonnes between December and March.
There could be more to come too. China is significantly behind Russia in its gold purchases and it also owns proportionately less gold as part of its foreign exchange reserves than either Russia or the US. But it’s now steadily building up its holdings and is becoming a major market player, whilst also holding significantly greater reserves in US dollars. Central bankers will argue that holding a balance of dollars and gold is only the only prudent course, but how that balance is weighted is likely to be increasingly illuminating in the future.
The current dollar strength may go on for some time yet, but when it does ultimately correct, the corresponding re-rating of gold is likely to be quite sharp. And at that point, the larger exposure a given portfolio has to gold, the better.