Gold Price To Watch Trump’s First Orders, Prepare For Fed Meeting
New York (Jan 21) Gold investors will be paying close attention to the first orders President Donald Trump signs next week, with some analysts suggesting that renewed pro-growth optimism could hurt the recent rally in the yellow metal.
Off its recent highs, gold is still preparing to end its fourth week of consecutive gains. February gold futures last traded at $1,205.20 an ounce, up 0.75% since last Friday.
Republican Presidential Nominee Donald Trump
President-elect Donald Trump speaking at a rally in July. Photo by Joseph Sohm / Shutterstock.com
Silver is also ending its fourth consecutive positive week; March silver futures last traded at 17.02 an ounce, up more than 1.5% from last week.
Analysts noted that gold has rallied for the past month as a lack of clarity has surrounded Trump’s proposed economic policies however, there are some who now expect gold to lose some of its new-found momentum as this ambiguity begins to end.
“I think once we start to see concrete policies coming in, pro-growth sentiment will come back to markets and that could hurt gold,” said Jasper Lawler, senior market analyst at LCG. He added that gold’s inability to break above $1,210 an ounce could be a sign that the market is a little over-extended.
Bernard, Dahdah, precious metals analyst at Natixis agreed that markets will be paying attention Trump’s policies; however he added that his economic and fiscal proposal will not be approved overnight.
He added that markets shouldn’t expect to see any major policies put in place in the Trump’s first week as the 45th President.
However, Dahdah added that he is expecting to see weaker gold prices, as markets continue to digest Fed Chair Janet Yellen’s recent comments that supported a few increases to the Federal Funds rate. He explained that gold could drop lower as investors prepare for the Fed’s first monetary policy decision to be announced Feb. 1.
What Are Markets Pricing In?
CME 30-Day Fed Fund futures are not expecting any interest rate hike in February; however with the meeting and statement could set the tone for the rest of the year.
Currently, June is see as the most likely month for the first rate hike. Markets are pricing in a more than 70% chance of at least 25 basis point move.
Greg Harmon, Founder of Dragonfly Capital, said that Friday’s fourth-quarter gross domestic product data, if it comes in stronger than expected could help to solidify the Fed’s view of three rate hikes, which would weigh on gold.
Watch The U.S. Dollar
Analysts also warn that gold investors should keep a close watch on the U.S. dollar as this will have the biggest impact on the yellow metal. Leading up to his inauguration Trump warned that the U.S. dollar is overvalued in relation to the Chinese yuan; however, many analysts also interpreted his comments as a general outlook for the greenback.
Positive for gold, currency analysts at BNP Paribas said that they see the U.S. dollar continue to struggle in the near-term as the president’s policies remain unclear. The U.S. dollar Index is seeing its fourth consecutive weekly loss.
Because of Trump’s recent comments on the dollar, currency strategists at Brown Brothers Harriman said there is growing uncertainty that the U.S. will abandon’s international best standards of letting the market determine currency values; however, they add that this is a very unlikely scenario.
“It is far too early to draw strong conclusions about the Trump Administration's dollar policy, or nearly any policy for that matter,” they said.
Levels to watch
For most technical analysts, the $1,208 to $1,210 an ounce area represents an important resistance channel.
Harmon said that it is difficult to get excited for gold unless prices can move towards $1,225 an ounce.
On the downside, he said that a break below $1,190 could lead to a retest of the December lows around $1,140 an ounce.
“Right now the market is kind of in limbo, waiting for something to happen,” he said.
While momentum appears to be waning for gold, Lawler said that he could see gold pull back to $1,180 in a “perfectly healthy correction.” He added that even a drop to $1160 wouldn’t be a major concern and could attract some buying interest.
Chris Beauchamp, market analyst at IG said that a push below $1,200 could lead to a test of $1,186 an ounce; at the same time for the gold market to regain its momentum, prices have to push above $1,220 an ounce.
The Final Say
The biggest U.S. economic report comes at the end of the week with the first print of fourth quarter GDP; however, ahead of Friday’s report, markets will receive some housing sales data and preliminary manufacturing numbers.
Source: KitcoNews
