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Gold Fundamental Forecast – February 23, 2017

By:
James Hyerczyk
Updated: Feb 23, 2017, 04:59 UTC

Gold showed very little reaction to the Federal Open Market Committee minutes released on Wednesday. In the minutes, the Fed suggested that another rate

Comex Gold Brick

Gold showed very little reaction to the Federal Open Market Committee minutes released on Wednesday. In the minutes, the Fed suggested that another rate hike may be just around the corner.

April Comex gold futures closed at $1233.30, down $5.60 or -0.45%.

“Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon” if data on jobs and inflation are “in line with or stronger than their current expectations,” or if the risk increased that the Fed might overshoot its goals, the meeting summary stated.

“Several” committee members said the probability of the Fed overshooting its dual targets for employment and inflation was “high,” which could cause the committee to have to move more quickly than the market expects.

After the release of the minutes, the U.S. Treasury yield curve flattened, with the short-term two-year note yield trading higher, near 1.23 percent, and the benchmark 10-year note yield slipping to 2.41 percent.

Even with this adjustment in the yield curve, market expectations currently are low for a rate hike in March, coming in at about 22 percent. Traders, however, are pricing in a 47 percent chance of a rate hike in June.

Daily Comex Gold
Daily April Comex Gold

Forecast

Gold’s reaction to the Fed minutes and the stock market at record highs suggests that something is helping to prop up prices. After all, we are still within striking distance of the high for the year, reached on February 8 at $1246.60. This “something” is political worries in France and to some extent, President Trump’s ability to run the country.

According to a BVA-Salesforce poll published early Thursday, French far right leader Marine Le Pen has increased her lead in the first round of France’s presidential election, though she is still seen being beaten by a wide margin in the run-off.

The National Front would win 27.5 percent of the vote in the April 23 first round, up 2.5 percentage points from the last time the poll was conducted on February 4.

We’re going to find out over the near-term if investors believe the Fed will raise rates in March. If the current gold rally starts to fail and prices begin to break under $1217.50 then this will send a strong sign that rates are going higher.

If gold continues to maintain its firm tone and the trend continues to move higher through $1246.60 then this will send a signal that investors don’t feel the Fed will raise rates and that demand for safe haven assets ahead of the French run-off election is more important.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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