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Gold Shrugging Off Hawkish Fed Comments… For Now

(Kitco News) - After pushing above $1,200 an ounce and hitting its highest levels since late November, gold could struggle as two new Federal Reserve voting members remain optimistic on the U.S. economy and see the possibility of three rate hikes this year.

Gold has pushed above $1,200 an ounce despite comments from regional Fed Presidents that support three rate hikes in 2017Thursday, in a speech in Malvern, Penn., Philadelphia Federal Reserve President Patrick Harker said that the U.S. economic growth is robust and he sees the possibility of three rate hikes this year.

“All in all, things are looking good. The labor market is strong and we’re creating jobs at a good pace,” he said. “Inflation is moving back up to our 2% goal, and growth is solid. We’re starting 2017 off on a good foot.”

Harker also acknowledged the central bank’s limitations on economic growth, adding that governments at all levels need to do their part.

“I’ve said it before, and it’s worth repeating, that monetary policy is a fairly limited set of tools with a fairly limited reach. We will respond to changes in the economy with moves in the federal funds rate, and we can do a very good job of creating the conditions that are consistent with economic growth. But the kinds of policies that will deliver that growth — employment programs, development, taxation, and trade policy — is up to elected officials at the local, state, and national levels,” he said.

Harker’s comments come of the heals of Chicago Fed President Charles Evans, who said last Friday that he is optimistic on the U.S. economy and it would not be “implausible” to see three rate hikes in 2017.

Despite the threat of aggressive central-bank action, the gold market has shrugged off the growing market expectations of three rate hikes this year as prices rise above a key level at $1,200 an ounce.

February gold futures last traded at $1,204.50 an ounce, up 0.66% on the day.

Analysts note that the yellow metal is benefiting from seasonal factors and a weaker U.S. dollar.

Wednesday, the gold saw a sharp rally following President-elect Donald Trump’s first press conference since winning the November election. According to analysts, markets were disappointed, sending U.S. 10-year bond yields lower and selling of the U.S. dollar as Trump failed to provide any new insights on his proposed economic and fiscal policies.

Trump used the press conference to highlight how he was going to separate himself from the Trump organization to avoid the appearance of any conflicts of interest. Trump also defended himself against a barrage of questions regarding any potential ties to Russia.

Analysts have noted that the lack of clarity on Trump economic policies will continue to hurt the U.S. dollar and support gold prices in the near term.

“As the inauguration day gets ever closer the market has started to reassess its initial thoughts about his impact on different markets and sectors. Yesterday's press conference was vintage Trump spending more time on micro than macro. This added to the concerns about what the future president can and will do,” said Ole Hansen, head of commodity strategy at Saxo Bank.

In a report Wednesday, analysts at CIBC World Markets said that they could see gold prices rallying through February before the market starts focusing on potential rate hikes, which could come as early as March.

CME 30-Day Fed fund futures are only pricing in a 19% chance of a rate hike in March, but markets are pricing in a more than 60% chance of a rate hike in June. Expectations are also high for another move in either September or November.

 

By Neils Christensen of Kitco News; nchristensen@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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