Opinion with Peter Hug
Gold Reacts To A Perceived Hawkish Fed
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(Kitco News) - Gold sold off heavily yesterday as Fed Chair Powell’s testimony in front of Congress was seen as more hawkish than traders expected. Powell’s statement that the Fed would continue to normalize rates throughout 2018 on the back of a robust U.S. economy and rising inflation expectations created a reversal in the dollar and a subsequent drop in the metals. The dollar is expected to gain strength during this cycle as the EU and Japan continue to remain accommodative and yield spreads for the dollar widen against the euro and yen. We continue to believe the Fed is posturing and will remain very tentative in moving rates higher with the risks associated to the equity and housing markets. Gold managed to stay above the $1,317 level at the close and remains tentatively constructive but the 1.22 euro/dollar level should be watched. A breakdown here would suggest further short-term dollar strength and move gold to a possible $1,307 trade.