The Daily Market Report: Gold Adds to Yesterday’s Solid Gains

USAGOLD/Peter A. Grant/03-16-17

Gold remains well bid in the wake of yesterday’s post-FOMC surge. The yellow metal came within striking distance of last week’s high at 1236.80 before fading somewhat.

Gold rallied in response to yesterday’s Fed rate hike, just as the previous two rate hikes were closely correlated to bottoms in the price of gold. “It is a case of ‘sell the rumor (of a rate hike), buy the fact’,” said Ross Norman of Sharps Pixley. ‘Again,’ I would add . . .

The rate hike itself was pretty universally priced in, but apparently the market was expecting the forward guidance to be a little more hawkish. In light of quite hawkish FedSpeak that drove expectations in recent weeks, the market almost certainly was not anticipating a dovish dissent.

Minneapolis Fed President Neel Kashkari voted against the rate hike, favoring instead steady policy. Kashkari noted that inflation remains below target and the job market is likely still not operating at its full potential. As near as I can tell, the last Fed dissenter opposing a rate hike, was Governor Mark Olson at the September 20, 2005 FOMC meeting, 11-1/2 years ago.

With Fed action off the table, probably until June, focus now shifts to U.S. fiscal and trade policies, the debt ceiling and the French elections. It may be months before we see actual fiscal reforms and the debt ceiling will have to be addressed at that point as any infrastructure plan is going have to be debt financed.

While the eurocrats in Brussels breathed a collective sign of relief over the outcome of the Dutch election, their worry should now shift to France. The first round of the French election is next month and then the final round is in May. Marine Le Pen remains in contention and has pledged to have a vote on France leaving the EU should she win.

Additionally, the FT warns that the debate over “Italy’s future in the currency bloc and a possible “Italexit” [is] gathering pace at what euro supporters fear is an alarming pace.”

“Italy is wounded and the hegemonic powers — France and Germany — are buying it up piece by piece. This operation is almost colonial.” — Prof. Alberto Bagnai

Markets and politicians seem to be largely ignoring risks associated with the debt ceiling. We’ve been here before and Congress always comes through with an 11th-hour hike to — or suspension of — the debt ceiling. One of these times though, they might take things a little too far.

“Gold will remain attractive for investors globally due to the heightened geopolitical risks,” said Evie Lamprou of asset manager China Post Global. There doesn’t seem to be end in sight for that particular set of risks.

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