Gold has now recovered from being negative to close higher on three occasions in as many days since Friday. The yellow metal’s has performed well since Friday’s jobs report was released. The precious metal has been supported above all by the dollar, which has remained under pressure. The greenback was unable to benefit meaningfully from Friday’s jobs report, which showed strong gains in non-farm employment and weak wage growth in February. On Tuesday, economic and political pressures were hitting dollar thus resulting in a weak performance.
The dollar has also been damaged by ongoing political concerns at the White House, which also had allusions for the stock markets as it elevated investor ambiguity. Donald Trumps’ stand on international political issues mainly The Iran Nuclear deal and the North Korean regime changes are not seen with much respect globally.
Moreover, the appointment of Pompeo will be yet another supporter of Trump’s protectionist trade policies, which is what the stock markets worried about on Tuesday.
The highly anticipated Consumer Price Index measure of inflation for February failed to better expectations and after Friday’s weakness in wage growth, it underscored expectations that prices are not as hot as had been expected, decreasing the odds of aggressive rate hiking from the Federal Reserve. However, the Fed is highly likely – almost certain – to raise interest rates by 25 basis points next week
But it is not only about the current rate hike- what matters is the FOMC’s outlook for interest rates further into 2018 and beyond, which will be the main focal point for the markets. If recent data, including Tuesday’s relatively moderate inflation numbers, have helped to weaken policymakers’ urgency for higher interest rates then this could put further downward pressure on the dollar and support buck-denominated gold.
However, if the Fed turns out to be more in favour of higher interest rates, perhaps because of expectations that high levels of employment may lead to higher wages and therefore higher inflation in the future, then this could be the trigger for a dollar rally, and a gold sell-off.
Over the next few days, the $1300 per ounce mark will be tested for the yellow metal and in case gold prices recover again after the Fed meeting then markets remain bullish for gold.