European uncertainty gives gold a bounce ahead of predicted rate rise
The gold price has edged up slightly over the hotly contested Dutch elections. Spot gold edged up 0.4 percent to $1,203.31 per ounce by 06:08 GMT, while U.S. gold futures rose 0.1 percent to $1,203.30 per ounce, according to Reuters.
Controversial eurosceptic Geert Wilders and his Party for Freedom (PVV) have been in the spotlight by gaining media attention through controversial policies such as closing mosques and banning the Quran — although Wilders has stated that he has no problem with muslims.
Although he has dropped in the polls — predicted to win 22 seats instead of the previous 25 in early March — it follows the 2016 political trend of rejecting the status quo, a trend generally seen as filip for gold.
“We expect the bullish bias to continue throughout the session as the Dutch election gives the yellow metal a slight safe-haven bid,” Jeffrey Halley, senior market analyst at OANDA, told Reuters.
Tensions will continue to run high throughout the week and into the next, owing to the imminent triggering of Article 50 by the UK government following the clearing of the Brexit bull by Parliament — although Downing Street sources have reported that the last week of March is the most likely time.
The Prime Minister Theresa May was given the green light to trigger article 50 after Peers accepted MPs’ decision to reject amendments aimed at guaranteeing rights of EU citizens.
In addition, The First Minister of Scotland Nicola Sturgeon has announced the Scottish Government will move to hold a second referendum on independence from the United Kingdom, following on from the 45-55 loss for the Scottish National Party in 2014’s referendum.
This uncertainty looks to influence a gold price already considerate of a potential interest rate rise in the US. The Federal Open Market Committee (FOMC) is due to give statements today and tomorrow. There has been much reporting on the possibility of interest rates hikes and the market consensus on the likelihood of a rise has consolidated over time.
Hikes are known to have a negative relationship with the price of gold as it does not have a yield and a hike would increases the opportunity cost of holding gold at the expense of higher-yielding investments, such as bonds and money market funds.
However, once a certain consensus has been reached, spot increases have less of an effect on prices on the margin as they are already priced in:
“The priced-in probability of a rate hike implied in Fed funds futures stands at 100%. This means the increase itself may have limited market-moving potential, putting the spotlight on a revised set of economic and rate path projections as well as a press conference with Chair Yellen,” said Ilya Spivak, senior currency strategist at Dailyfx.
In other news, the heavy winter storms in Feather River, California, last month exposed 200-year-old gold seams and flushed out old mines, sending flakes of the precious metal into the river; although it is yet to be seen as to whether this will spark a second gold rush.
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