Gold Spikes to Three-month High Amid Lower Treasury Yields

April Comex gold futures spiked to a three-month high on Thursday as investors continued to react to the minutes of the January 31 – February 1 Federal Reserve monetary policy meeting released on Wednesday. Although the Fed suggested a rate hike may be just around the corner, the market’s price action indicates otherwise. Further dampened expectations of an interest rate hike next month were signaled by a drop in U.S. bond yields and a slowdown in the U.S. Dollar’s upside momentum.

Weaker U.S. equity markets early in the session also contributed to gold’s firm tone as well as political uncertainty in France. A rise in the popularity of far-right candidate Marine Le Pen is causing jitters in the European financial markets.

U.S. Treasurys

U.S. government debt instruments rose on Thursday as investors reacted to a speech by Treasury Secretary Steve Mnuchin and the results of a 7-year Notes auction. Higher prices mean lower yields and lower yields make the U.S. Dollar a less-desirable asset.

Mnuchin toed the company line on Thursday when he told CNBC’s “Squawk Box” that he wants to see “very significant” tax reform passed before Congress’ August recess.

“We want to get this done by the August recess. We’ve been working closely with the leadership in the House and the Senate and we’re looking at a combined plan,” he said.

Although tax reform is potentially inflationary and could lead to higher rates, yields went down because approval of the tax reform plan has basically been pushed into August and there is no guarantee that President Trump will get everything he wants.

U.S. Dollar

March U.S. Dollar Index futures weakened on Thursday due to uncertainty over Trump’s tax reform plan and the Fed’s not-so-hawkish monetary policy meeting minutes released on Wednesday. While the Fed may have hinted at a possible rate hike in March, an early rate hike primarily hinges on Trump’s economic policies. Since the tax reform plan may not get passed until August, there is no urgency for the Fed to raise rates at its March 15 meeting. This helped drive Treasury yields lower, hurting demand for the dollar.

Crude Oil

Crude oil prices moved higher on Thursday as investors reacted to U.S. government inventories data. Although the report showed a seventh straight build in crude stocks, prices rose because the number was less than investors had estimated.

According to the U.S. Energy Information Administration, crude stocks rose 564,000 barrels last week. At the Cushing, Oklahoma futures delivery hub, inventories fell by more than 1.5 million barrels, its largest draw since October. U.S. gasoline stocks fell by 2.6 million barrels, and distillate fuel stocks dropped by 4.9 million barrels the most since October 2014.

In U.S. economic news, weekly unemployment claims came in at 244K, slightly above the 242K estimate. The monthly Home Price Index rose 0.4% as expected.