Dealing Desk: Rate Hike Uncertainties Subdue Shine

Mar 3, 2017·Rachel Stonier

Goldmoney Wealth clients have been net selling all precious metals this week, with gold being sold to take profit. Clients have preferred vaults in London, Zurich, and Singapore, and have shown less preference for the Hong Kong and Toronto vaults.

The timing of the next Fed rate hike has been a matter of great debate this week, with the chance of a March rate hike increasing to 82% from 37% almost overnight. Personal Consumption Expenditure (PCE), a favourite economic indicator of the Fed, came out at 1.9% – the highest it has been since 2012, which increased the probability of a hike taking place during its two-day meeting ending 15 March. The U.S. Dollar Index climbed to a seven-week high amidst the rate hike optimism, which saw gold drop to $1,237 from the three-and-a-half-month high of $1,260 it reached earlier in the week.

President Trump addressed Congress on Wednesday, during which the market was looking for clues as to his delivery on earlier promises made. They were not disappointed, clearly liking what they heard with the announcement of $1 trillion infrastructure and military spend, and healthcare reform and tax cuts for both individuals and businesses. Trump’s pro-growth economics further strengthen the argument for a rate hike in a fortnight.

All metals traded lower: silver hit a high of $18.47 before dropping back to $18.24, platinum hit $1,047.80, and palladium rose above the $780 level; however, both PGMs then retreated. Platinum gave up its gains and fell back down to the $1,000 mark, and palladium pulled back to $775 level.

“Gold and silver may be trading lower, but in a rather subdued fashion,” said Rachel Stonier, dealing manager at Goldmoney Wealth. “Traders are still using metals as a safe-haven play, seeking protection against a possible stock market correction or black swan event that remains at the back of investors’ minds. Elsewhere, political tensions in the Eurozone continue to give precious metals their shine.”

French elections and discussion of a possible EU exit see investors seeking protection while the populist right-wing PVV party, led by Geert Wilders, is taking a significant lead in the polls for the Dutch general election on March 15. Nominal yields on two-year Dutch and German bonds are deep in negative territory, which could encourage European investors to increase their allocation to gold.

Despite big moves, all of the metals have remained relatively muted this week. Silver saw the only gain, rising by 1.1%, while palladium dropped by 0.1%, gold fell by 0.6%, and platinum suffered a 1.1% loss.

02/03/17 16:00 – Gold: $1,241.66; Silver: $18.34; Platinum: $999.85; Palladium: $776.21. Gold/Silver Ratio: 67.70.

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