Dovish Central Banks Lift Gold

August 17th, 2017 by

Following yesterday’s meeting minutes released from the July gathering of the FOMC, the European Central Bank (ECB) also struck a more dovish tone in its outlook for interest rates and monetary policy. This more dovish stance signals to investors that major central banks are considering leaving accommodation in place for longer, which is not an optimistic view of economic conditions.

This helped lift spot gold slightly (+0.2%) on Thursday morning to back above $1,285/oz. The yellow metal was actually above $1,290/oz when markets opened before  Spot silver lost 3¢ (-0.15%) to settle near $17.08/oz. Platinum slipped 0.2% as well, but palladium gained over 1.5% to hit $920/oz. Incredibly, palladium has been by far the best-performing commodity in 2017, with palladium futures gaining over 35% year-to-date.

The precious metals all posted strong gains on Wednesday in the aftermath of the FOMC minutes:

Gold: $1,282.80/oz (+$11.70, +0.92%)
Silver: $17.10/oz (+49¢, +2.92%)
Platinum: $976/oz (+$16, +1.67%)
Palladium: $906/oz (+$28, +3.19%)

Fed and ECB

ecb-dove

Like the Fed publishes the minutes from its policy meetings a few weeks after the fact, the ECB published its meeting notes from July. It revealed that the strength of the euro is giving policymakers pause about continuing to normalize interest rates. Higher rates are correlated with a firmer currency. The U.S. faced this same problem at the end of last year, as the dollar had been surging against all of its competitors.

The euro remains above $1.17 after trending as low as $1.04 as recently as December. This massive rally has naturally coincided with a softer dollar, as the USD has continued to lose ground throughout 2017. The ECB news pushed the euro down 0.5% in trading this morning. By contrast, the dollar rose in early trading. However, it remained slightly off from yesterday’s four-week high, trading at 93.8 on the DXY index. The 10-year Treasury yield slipped to 2.23%.

Elsewhere In the Economy . . .

Weekly jobless claims were reported lower by 12,000 this morning by the Department of Labor, registering at 232,000 new claims. A total under 300,000 is generally viewed as a healthy labor market. Nonetheless, new research by Moody Analytics is showing that, despite what most of the pundits say when they cite the official unemployment rate, there is still considerable slack in the job market. A disproportionate amount of recent job growth has been in the service sector. All of this is weighing on wage growth.

After the manufacturing index for New York nearly touched a three-year high yesterday, the outlook got a bit murkier after the Philadelphia Fed Manufacturing Index slipped on Thursday.

Stock markets overseas were mixed early in the session, though mostly down in Europe. U.S. indices also slid lower, although Walmart beat earnings expectations for the second quarter. Its competitor Target also traded 3% higher. Financial shares trended lower following the dovish Fed minutes on Wednesday.

 

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.