No dip for gold despite rate rise and Dutch election results
Despite a tumultuous week, the gold price looked sprightly as the Fed confirmed an interest rate hike of 0.25% yesterday, reaching a seven-session high of $1,224.96. Moreover, controversial Dutch frontrunner Geert Wilders did not gain as much ground as he had hoped, although made significant strides forward in the Dutch parliament.
The Federal Reserve exhibited a cautious sentiment with interest rate hikes. The Financial Times reporting the expected macro responses to rate hikes:
- Treasury yields are up 1 basis point on the day at 2.51%, having fallen by 12 basis points to 2.48% in the aftermath of the decision.
- Market expectations for at least four Federal Reserve rate increases this year dipped to less than one in five
- The Dollar index is 0.2% softer at 100.59, having been down as much as 1% on Wednesday. The euro is down 0.1% at $1.0723
- Emerging market currencies have risen, with the Mexican peso reaching its best level since Trump was elected at 19.19 pesos
- The S&P 500 ended 0.8% higher at 2,385 — just 0.4% short of its record close
- Commodities rally — copper, oil and gold all higher.
The Financial Times went on to comment that a string of upbeat economic data and hawkish remarks from a handful of Fed speakers had prompted some to expect the Fed’s “dot plot” of interest-rate projections being revised to reflect four rate rises in 2017, up from its previous estimates of three moves.
Although the consensus was that a rate hike would indeed happen, the Fed looks to increase rates gradually over time instead of employing the short, sharp shock that investors were betting on.
Abi Oladimeji, Chief Investment Officer at Thomas Miller Investment commented in the Thomas Miller Newsletter:
“What appeared to catch a lot of investors off guard was the Fed’s refusal to rise to the hawkish expectations of market participants, many of whom were seeking signs that the central bank might be considering a more aggressive response to increasing optimism on growth and rising inflation expectations.”
A Bank of America Merrill Lynch research note, released last week, saw gold continuing to rise on the back of the prospect of future further hikes:
“While tighter monetary policy is not bullish, inflation and a range of uncertainties, including European elections and protectionism should support the yellow metal. As such, we see prices at $1,400 (per troy ounce) by year-end”.
Despite the wave of populism on the back of Brexit and Trump, Geert Wilders did not manage to secure victory in the Dutch elections. The BBC reported that Prime Minister Mark Rutte’s VVD party secured 33 of 150 seats, although this amounted to losing 8 seats. This marks the start of his third term as Prime Minister.
Wilders’ Freedom Party only achieved 20 seats, coming in second place, although this was a gain of 5. The Green party gained 10 seats, with a total of 14.
In other news, the BBC reported that a hoard of gold discovered hidden inside an old piano is actually a collection of sovereign coins.
The discovery was made in Shropshire before Christmas when its new owners had it retuned and repaired.
An inquest in Shrewsbury heard the collection consists of an undisclosed number of coins dating from 1847 to 1915.
Link to this article: : http://www.goldmadesimplenews.com/markets/no-dip-for-gold-despite-rate-rise-and-dutch-election-results-13029/