pile-of-gold-rally

Five-Month High for Spot Gold Holds

April 13th, 2017 by

Early morning gains during Thursday’s trading session propelled spot gold to a fresh five-month high. The yellow metal was up slightly, about 0.1%, to $1,286/oz, its best intraday mark since November 10th. This followed a 1% advance on Wednesday.

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For some perspective on the level of volatility in gold prices around that date, gold’s previous five-month high had occurred on November 11th (the next day) around $1,264/oz—more than $20 lower. On the previous day, November 9th, gold was trading as high was $1,333/oz!

In other words, the sell-off after the election was swift, and the precious metals have been mostly flat since then (but gradually on the rise).

Spot silver also moved higher on Thursday, adding 8¢ per ounce (+0.4%) to $18.60/oz.

Trump Sinks Stocks, Dollar

In its first truly dramatic movement of 2017, the gold market has been one of the biggest beneficiaries of recent volatility and investor jitters. The global financial markets have almost unanimously seen adverse reactions to the flurry of news being made by President Trump regarding a slew of sensitive geopolitical conflicts. From North Korea to Syria to relations with Russia and China, the president has been candid—some might say alarmingly so—on social media about some of the biggest challenges American foreign policy faces. Amid all of the media calamity, spot gold has gained over $30 per ounce this week already.

Late yesterday, Trump also spoke directly about the Fed and U.S. monetary policy. On the one hand, the president spoke favorably about low interest rates and preventing the dollar from running too hot, yet in the same breath praised Fed Chair Janet Yellen. In the past, Trump had been publicly critical of Ms. Yellen for keeping interest rates artificially low as a political favor to the Obama administration.

falling-dollar

Predictably, the dollar faded against global currencies following the comments. The DXY index fell as low as 100.0 while U.S. bond yields plummeted, sending the 10-year T-note yield down to 2.24%. Stocks also lost ground across the globe. Trump had bucked a long-standing tradition of American presidents sticking to “strong-dollar rhetoric” and “not meddling” with the Federal Reserve.

Janet Yellen

Fed Chair Janet Yellen giving a post-FOMC press conference (photo: Federal Reserve)

Whatever his politics regarding monetary policy, the president has extremely limited authority over the Fed, possessing only the power to nominate new members to the Federal Reserve Board as the tenures of current members expire. The POTUS cannot alter or direct Fed policy by fiat, purportedly in the spirit of keeping the (private) institution independent. Chair Yellen is not scheduled to leave her post until 2018, and there’s no guarantee that she won’t be renominated by Trump. Moreover, Congress similarly has little oversight power over the Fed.

While the president may simply be sharing his views on some of the world’s pressing issues, just as he has throughout his career in the public eye, these informal messages from the White House are an unprecedented move against the grain. It is having the effect of heaping even greater fear and uncertainty onto market expectations, particularly overseas, which makes such a forward-looking field like finance much more tricky. In such circumstances, gold is generally considered the most trusted safe-haven asset available.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.