Uncertainty About The EU's Future Supports Gold Prices

 | Feb 17, 2017 06:05AM ET

Sustained inflation above Fed’s target threshold 2% and low unemployment increase the likelihood of a rate hike sooner rather than later this year. This will strengthen the US dollar and pressure gold. Will gold continue rising?

Gold prices are rising after hitting almost two year lows in mid-December. The increased political uncertainty about the future of eurozone ahead of French presidential elections is the main bullish factor supporting gold prices in short term perspective. The National Front leader Marine Le Pen has vowed to hold a referendum on European Union membership in six months time if she is voted in. A major bearish factor for gold is the anticipation of Fed’s monetary policy tightening.

In her testimony before US Senate and Congress committees this week, Fed Chair Janet Yellen confirmed that the central bank plans three rate hikes this year and will raise rates at coming policy meetings as it would be ’unwise to wait too long to tighten’ mentioning signs of inflation and wage growth. This leaves the door open for a March rate hike, though investors deem the likelihood of a March hike low, as Fed officials have said they’d like to see the recent uptick in inflation sustained before they raise interest rates.

On Wednesday, data showed the Consumer Price Index rose 0.6% in the month, the largest amount in four years, with headline inflation above Fed’s target of 2%.