On 28 February, Trump’s address to Congress, even though not offering any specific details on his promised fiscal policies, was well received and pushed the USD and bond yield higher putting pressure on gold.
The other negative weighing on the gold price has been the continued hawkish Fed tone with comments from Fed members such as Board of Governors’ member L. Brainard and New York’s W. Dudley (usually both doves) or San Francisco’s J. Williams on the back of the continued solid US macro data and the improvement in financial conditions.
Even more recently, Chairwoman Yellen’s speech at the Chicago Executives’ Club provided a very clear signal of a rate hike at the next FOMC meeting. The market has now almost fully priced in the likelihood of a rate hike tomorrow.
As regards the ECB, as expected, at its March meeting, it kept interest rates steady and its QE program unchanged (EUR 60bn/month pace from April to December). However, it upgraded its assessment of the economic outlook; it now sees a “steadily firming recovery” with a good chance that the “cyclical recovery may be gaining momentum”. The most likely scenario is that the decision to taper further in 2018 will be communicated in Q3 which could also add to the negative sentiment toward gold.
Even though gold may appear attractive, due to Trump’s highly unconventional policies and the potential uncertainties these could create, concerns surrounding Brexit and fears about the upcoming French, German and Dutch elections, we nevertheless continue to believe that gold will remain range-bound for the next couple of months, oscillating between USD 1100-1300, as the strong US economy and the Fed’s consequent approach to monetary tightening will remain the key driver for gold prices in 2017.
Nevine Pollini – Senior Analyst Commodities – Union Bancaire Privée (UBP)