Fed’s ‘Hawkish’ Message Could Be More ‘Bark Than Bite’ - TD Securities
The Federal Reserve’s “hawkish” attitude Wednesday could very well not pan out, amid a number of geopolitical risks still facing markets, this according to a TD Securities’ report, which sees gold coming back up to around $1,275 an ounce.
“The latest rate hike and the Fed's ‘hawkish’ stance is more bark than bite as far as the precious metals market is concerned, as we move deeper into 2017. Global financial markets face geopolitical risks such as Brexit, North Korean missiles and the Italian elections,” analysts said in a report released on Thursday.
Another major element supporting gold is the fear that the Trump administration will fail to deliver the promised stimulus, including lower corporate and personal taxes. “This looks increasingly likely,” the report noted.
Fed’s dot plot projections are never set in stone, especially with such slow inflation, TD Securities’ Bart Melek, global head of commodity strategy and Ryan McKay, commodity strategist, said in the report.
“Just because a central bank tells the market it will lift rates at a specified rate, it does not mean it will actually do it. That certainly has been the Fed story for quite a while. Given the fact that there is precious little inflation and acknowledging the fact that this expansion is getting to be somewhat long in the tooth, specs could well again bet that the US central bank's hiking intensions may be pared down,” Melek and McKay stated.
Gold prices fell to three-week lows on Thursday in reaction to the Fed raising the interest rate by 0.25% and announcing it has a plan to shrink its $4.5 trillion balance sheet.
TD believes there is no reason to overreact to the Fed announcement.
“We still expect gold to migrate toward $1,275/oz after some additional selling,” the report said. “Equity correction risks, geopolitical angst, continued US economic underperformance relative to expectations, a flattish yield curve and growing doubts surrounding the Trump Administration's fiscal stimulus are all factors which should keep investors vested in the metal.”