This week, quite a few interesting things happened. How could they affect the gold market?
Wednesday was full of important events, which could have a non-negligible impact on the gold prices. First, it turns out that the Republicans would have enough votes in the U.S. Senate to pass a budget which is key to introducing tax reform. This is because a budget approved by both the Senate and House of Representatives would allow the Republicans to use a reconciliation procedure, which enables to pass tax legislation with a simple majority, rather than the 60 votes normally required. This is bad news for the gold market, as the strengthened odds of introducing tax reform translate into a more bullish stock market and expectations of a more hawkish Fed.
Yesterday, the U.S. central bank published the latest Beige Book. The report showed that economic activity increased in September through early October, with the pace of growth split between modest and moderate. Importantly, it also indicated that inflationary pressures have remained modest since the previous report. The report confirms that inflation is still subdued, but it should not significantly alter the Fed’s stance. The impact on the gold market should be minimal.
When it comes to other data, the housing market – reflected by tumbling housing starts and building permits – showed weakness in September. But gold was little moved. On the other hand, the Empire State Index jumped to a three-year high in October, while industrial production rebounded (despite hurricanes) in September after two straight declines. On balance, the current economic outlook seems to be positive, which is not good news for safe-havens, such as gold.
However, the price of the yellow metal may be driven not only by macroeconomic developments, tax reform prospects and the market odds of a Fed hike in December, but also by speculation over the next Fed chief. As it is widely known, there is a short list of candidates: incumbent chair Yellen, incumbent governor Powell, Cohn, Warsh and Taylor. Recently, the odds of the latter increased, which is bearish for the gold market, as he is considered to be a monetary hawk. Now, Powell leads the polls, but a lot may happen here. Stay tuned – we will analyze the profiles of candidates and their likely impact on the gold market in the near future!
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.