Gold could pull back but ‘Rout is not expected’

UNITED STATES February 28 2017 12:45 PM

NEW YORK (Scrap Register): The Federal Reserve and U.S. President Donald Trump may “spoil the party” in gold, yet a massive sell-off is not likely either, said TD Securities. 

The metal has been bolstered lately by a sliding U.S. dollar, lack of a stronger hawkish tone in the most recent minutes of a Federal Open Market Committee meeting, uncertainties around Trump’s policies and potentially destabilizing upcoming European elections, TDS added. 

“But given that the U.S. economy is nearing full capacity and the Trump tax cuts still very much in the cards, it is quite likely that that the U.S. central bank will pull the trigger on rates by June,” TDS noted.

“Also, as short-term rates move higher, the firmer USD may well drive investors to reduce some exposure to the yellow metal, which would no doubt reverse some of the recent technical rally. Investors should also look ahead to an address by President Trump to Congress (this) week for further clarity on his economic policy, which could reignite optimism again,” said analysts at TDS. 

“Still, while gold could ease back toward $1,235, a rout is not expected. It is likely that the Fed will only hike twice this year and the world still faces political risks in Europe and a generally low global rates environment. There will also continue to be concern that the Trump Administration will engage China and others in a ‘currency war,’ which would typically be supportive of safe-have assets,” TDS concluded.