As Fed Speeches Dominate, Gold Heads South

This week, speeches of most of the FOMC’s twelve members were scheduled to take place . What can we learn from them? The current week is dominated by the next round of Fed officials’ speeches. Although some of the events – including Yellen’s speech on Thursday – are yet to come, let’s analyze what has already been said. On Monday, Chicago Fed President Charles Evans noted that the economy’s performance might justify three hikes this year, but the Fed might raise interest rates four times, if the economy really takes off (or just twice, if uncertainty increases). On the same day, Dallas Fed President Robert Kaplan said that he would back more interest rate increases as long as the economy saw gains. On Tuesday, Kansas Fed President Esther George pointed out that she needed more details on the Trump administration's fiscal proposals to factor them into her economic forecasts, while the Fed Vice Chairman Stanley Fischer told reporters that the FOMC’s median estimate for three hikes this year seemed about right. On balance, the presented remarks did not bring anything new, as the Fed’s officials reiterated that inflation is on the way to reach Fed’s target, but that many uncertainties remain. However, they reminded investors of rate hike plans. Indeed, the market odds of a June hike increased from 49.6 to 54 percent. The recent economic data could also reinforce the rate hike expectations, as new orders for durable goods increased 1.7 percent in February, while consumer confidence surged in March to a 27-year high. This is why the US Dollar Index edged up yesterday, while gold prices went south. However, the uncertainty about Trump’s policy seems to provide support for the yellow metal. Investors should remember that consumer and business confidence is not hard data, but subjective opinions – for example, confidence was high before the financial crisis. Another example: Markit Flash U.S. Composite PMI Output Index declined from 54.1 in February to 53.2 in March, signaling the slowest expansion of private sector output since September 2016. It seems that the confidence is high due to the elevated expectations about Trump’s economic agenda. Although the new administration is determined to fulfill its promises, the failure of Trumpcare signals that it will not go as smoothly as expected. Anyway, there are still a few Fed speeches left – and they can affect the gold market. Stay tuned! Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.