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Dollar Retreat Boosts Gold Prices, Technical Break Triggers Further Momentum

February 23, 2017

Gold prices gained some support from the Fed minutes, but the US retreat and lower yields following Treasury Secretary Mnuchin’s comments were crucial in triggering a break above resistance to 14-week highs.

In the Federal Reserve Open Market Committee (FOMC) minutes many participants expressed the view that it might be appropriate to raise the Federal Funds rate again fairly soon if forthcoming data on the labour market and inflation was in line with or stronger than expected.


Many members still saw only a modest risk that inflation pressures would rise significantly and expressed the view that policymakers would have ample time to respond if signs of rising inflationary pressures did begin to emerge.

There was a high degree of uncertainty surrounding the outlook with a particular focus on fiscal policy. Overall, there was market disappointment over a lack of more overtly hawkish tone which weakened the dollar slightly.

There was, however, no move to rule out a rate hike at the March 15th meeting which limited the impact and USD/JPY held above 113.00. The dollar subsequently gained some support from comments by US Treasury Secretary Mnuchin that a strong US currency was in the US interest over the long term.

Overall, gold edged higher following the minutes, although there was no move above the $1,240 level.

Relatively narrow ranges prevailed during the Asian and European sessions with gold trading around $1,238 per ounce.

Just ahead of Thursday’s US open, Mnuchin stated that the Administration was very committed to significant tax reform by the August recess. The aim was for annual GDP growth rates of 3%, although it may take 2 years to get there.
He also stated that the border adjustment tax was being looked at, but that there were some concerns while the Treasury is seriously considering issuing 50-year or 100-year bonds.

There was a further decline in US yields following the comments with the 10-year yield dipping to below 2.40% and the dollar also lost ground with USD/JPY below 113.00.

US jobless claims were slightly higher than expected at 244,000 in the latest week from a revised 242,000 previously, although there was no major market impact.

Further strength in commodity prices as Wall Street opened was important in providing further support for gold, especially with the dollar index down over 0.25% on the day.

There was also evidence of stop-loss buying on a break of $1,243 and gold advanced strongly to fresh 14-week highs just below $1,250.

Trends in the dollar and bond yields will continue to dominate gold prices in the short term with position adjustment into the weekend also likely to be a significant feature.

http://www.economiccalendar.com/2017/02/23/dollar-retreat-boosts-gold-prices-technical-break-triggers-further-momentum/