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Gold To Climb As Market Questions Fed Rate Hike Pace - TD Securities

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Gold To Climb As Market Questions Fed Rate Hike Pace - TD SecuritiesGold prices will witness a move higher amid increasing market doubts around the Federal Reserve’s resolve to pursue intensive monetary tightening into 2018, TD Securities said in a report.

“The yellow metal may well trend toward a technically determined high of $1,270-1,275,” TD Securities said in its Weekly Commodities report. “As the market starts to increasingly question the Fed's determination to pursue a robust monetary policy tightening into 2018, gold should benefit.”

Increasing uncertainty over the Fed’s future direction is driven by the re-emergence of reports around the U.S. President Donald Trump’s links with Russia, which threaten his chances of delivering a pro-growth fiscal agenda, according to the bank.

The news of Trump sharing classified information with Russia as well as additional accusations of him approaching the former FBI director James Comey to halt the investigation into Michael Flynn's ties with Russia has opened up serious concerns about the future of his administration.

“Although impeachment is unlikely, as the Republican-controlled House of Representatives and Senate will be very reluctant to throw out a president representing the same party, the Trump agenda will very likely be damaged,” TD Securities' global head of commodity strategy Bart Melek and the bank's commodity strategist Ryan McKay wrote.

TD Chart

The fear is that the White House will waste a lot of time battling off attacks and not enough time working on policy and legislation.

“It is very likely that the hundreds and hundreds of vacant positions waiting for officials in the bureaucracy will go wanting for quite some time, making the passage of regulations and writing of bills quite difficult,” the report explained. “No clear fiscal agenda means the US output gap does not close quickly, inflation does not rise sharply, leaving the Fed without an impetus to tighten quickly or aggressively.”

These developments are supportive of gold prices, as they can lead to a flat yield curve, low interest rates and a more tamed U.S. dollar.

But, before gold prices rise, they will first take a step back towards $1,245 following Wednesday’s release of the FOMC meeting minutes, TD Securities noted.

“Traders are slightly ahead of themselves at this stage, and may be betting too heavily that the US central bank is reluctant to lift rates this year. Since the current US political woes were not known at the time of the early-May FOMC policy meeting and the Q1-2017 economic slowdown was seen to be transitory, we will no doubt see references pointing to rate increases and the comfort with that policy,” Melek and McKay said.

At the time of publication, spot gold on was trading slightly higher at $1,251.30 during the opening hours of the Asian session and June Comex gold was last seen at $1,251.60.


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