Gold continues to consolidate in the recent range as the market seeks some clarity on Fed succession and ECB policy. The former is reportedly unlikely to happen this week, while the ECB will announce policy tomorrow.
The short list for the next Fed chair includes John Taylor, Jerome Powell and a reappointment of Janet Yellen. If these are really the only three in contention, then Janet Yellen is President Trump’s best bet for furthering his reflation agenda. Whether she would stay on or not is an open question. I wrote in great detail on this topic in yesterday’s DMR.
Tomorrow the ECB is expected to hold steady on policy, as the BoC did today. As for the QE question, there seems to be an expectation that the ECB will signal that it will buy fewer assets for a longer time. Sort of a taper, but not really, as Draghi may be hoping for signs that better growth prospects are taking hold before he really moves the central bank toward tighter policy.
Just a week after the Senate passed a budget proposal — a key step in advancing proposed tax cuts — the President’s support in the Senate has been rattled. Arizona Sentaror Jeff Flake said today that “a lot more” Republicans are poised to speak-out against Mr. Trump.
If the President is losing the support of the GOP, yet another key piece of his agenda may be in jeopardy. I would also point out that tax reform has been a primary driving force behind the stock market rally. If the tax cuts are not passed before year-end, there is some risk that equities could rollover.
Capital coming out of shares would find its way to safe-haven assets, including gold. If the yellow metal pushes back above 1308.80 in the near term, a resumption of the uptrend that has dominated this year would become likely.