Gold prices come under pressure following Fed statements

Market report Michael Blumenroth – 03.03.2017

Weekly market report

Back from my vacation with a sense of just having left, I can briefly summarise what happened during my absence as follows: the stock markets may have raced from record to record, but the most significant change in the trading since my departure has been the complete turnaround of market perception regarding the interest rate policy of the US central bank Fed.

Just two weeks ago, the probability both forecasted and priced in on the futures markets for a Fed interest rate hike was already calculated at 30 per cent by Bloomberg and at 18 per cent by the CME. Currently, it stands at 90 and 75 per cent, respectively, all due to a broad media and interview offensive by a number of Fed members. Just yesterday, a member of the Board of Governors, Lael Brainard, who is usually averse to hasty key interest rate increases, made it quite clear that she expects them to be raised in the near future. Later today, Fed Chair Janet Yellen will have the chance to explain her views on the matter during her speech.

As was to be expected, the prospect of increased key interest rates, which in turn strengthened the US dollar, thwarted the upward movements of nearly all commodities. While Gold traded at 1,226 US$/ounce on 15 February, it made significant gains after some sideward movement and reached a new annual high of 1,263 US$/ounce. Until last night, it remained steady around 1,250 US$/ounce before slumping significantly following the interview, to its current 1,229 US$/ounce. Quite clearly, there is no one to blame but the Fed for yesterday’s price drop.

Eurozone investors saw a similar development during the past two weeks. From 38.40 €/gram on 15 February, Xetra-Gold climbed to 38.25 €/gram on 24 February. While it traded at a firm 38 €/gram yesterday, it dropped to its current 37.50 €/gram after the Brainard interview.

This afternoon and evening, a number of Fed representatives will step in front of the microphones. If their statements resemble those of Ms. Brainard, the key interest rate hike on 15 February is all but inevitable, unless US labour market data, to be published next Friday, is extremely bleak.

To all of our readers: have a happy and sunny early spring weekend.

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