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arkadiusz-sieron

Gold Shrugs Off Hawkish Fed Comments

January 13, 2017, 7:22 AM Arkadiusz Sieroń , PhD

The Fed officials have offered hawkish comments recently. What do they mean for the gold market?

As we reported on Monday, a few regional Fed presidents provided hawkish comments last week, strengthening the case for a faster tightening this year than in 2016. For example, Charles Evans considered three hikes in 2017 as not implausible, while Jeffrey Lacker warned markets that the Fed may increase interest rates quicker than investors expect.

Yesterday, Patrick T. Harker, president of the Philadelphia Fed, joined that chorus in his first public speech as a voting member of the FOMC and said that economy was looking good, the labor market was strong, while inflation was returning to the Fed’s target. Hence, he saw “three modest hikes as appropriate for the coming year, assuming the economy stays on track”.

Interestingly, gold shrugged off all these hawkish comments and jumped above $1,200 yesterday (but only for a while). Gold’s behavior signals that the lack of clarity on Trump’s economic policies is now one of the most significant drivers of gold prices. As we wrote after Trump’s disappointing press conference, “the uncertainty about the U.S. economic policy of the new administration is positive for the gold market”. It seems that the price of gold may increase further until the Inauguration Day on that uncertainty. However, the presidential inaugural address may reduce the uncertainty and end gold’s upward move, just as the presidential election did. Gold declined in the aftermath of the election, since the biggest political uncertainty was removed from the markets. This is why the yellow metal is likely to decline once Trump moves ahead with his economic plans, whatever they are. However, the decrease will be strengthened if Trump pleases the markets. On the other hand, if the newly appointed president disappoints investors significantly, gold may go north, even if the uncertainty about the new administration’s policies diminishes.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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Jan Market Overview

Gold Market Overview

Our summary is not merely backward-looking. On the contrary, the analysis should help investors better understand the precious metals market and draw appropriate investment conclusions for the New Year.
We will also share our fundamental outlook for 2020, presenting our base scenario and its implications for the gold market. We will focus on the impact of the macroeconomic drivers, such as the interest rates, the Fed and the ECB monetary policies, the U.S. fiscal policy, etc. We argue that the fundamental outlook for gold has deteriorated since 2019.
Last but not least, we will analyze the potential upside and downside risks for the gold market in 2020. In particular, we will examine whether investors should expect recession this year.

Read more in the latest Market Overview report.

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