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14th June | Dubai
Senior Commodity Analyst,
After hitting a seven week high early in the month but failing to breach the USD 1300 psychological level, gold pared back most of its gains as the USD started to firm in the aftermath of the lifting of a few uncertainties:
The ECB meeting came and went and, as expected, the Central Bank kept its monetary policy unchanged. Draghi also declared that the risks to the growth outlook are now broadly balanced and adjusted its forward guidance slightly.
The Conservatives remained the largest party but lost their majority at the UK General Election; the outcome could now help to prompt “soft” Brexit negotiations (rather than a “hard” stance).
Former FBI Director Comey’s testimony in front of the Senate turned out to be less damaging than expected for President Trump. And finally, in the French parliamentary elections, President Macron’s party is heading for a strong majority.
Now, all eyes will be on the various central bank meetings due this week: BoE, BoJ and most importantly the FOMC meeting of 14 June and the 25 bp rate hike increase the meeting is expected to deliver. Attention will focus on any assessment by Yellen about the future state of the US economy and the number of rate rises that should be expected this year especially in the aftermath of the recent disappointing macro data (US job data, Durable goods, etc.). The market is currently pricing in fewer than two rate hikes by the end of 2017(including the June hike).
Within this background, gold should not be entirely dismissed. Continuing uncertainties surrounding the Trump administration’s ability to deliver on its promised pro-growth policies and the recent increase in geopolitical tensions in the Gulf region (Qatar) coupled to repeated North Korean missile launches could continue to remain supportive for the yellow metal as a safe haven.