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Gold Prices +3% as Fed Rate Rise Lags Inflation, Dollar Falls, Greek Debt Deadlines Loom

Thursday, March 16, 2017 8:30
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Adrian Ash is head of research at BullionVault, the world-leading gold trading & ownership service online…

GOLD PRICES rose further Thursday in London, gaining almost 3% in Dollar terms since the Federal Reserve raised US interest rates as expected yesterday, and also raised its forecast for interest-rate hikes ahead.
 
Continuing to re-invest the central bank's $4 trillion QE holdings of US Treasury bonds as they mature, the Fed's Open Market Committee now sees its key rate ending 2017 no lower than 1.4% versus 1.1% at the December meeting.
 
The Fed Funds rate will end 2018 between 2.1% and 2.9%, according to the FOMC's March projections, higher from Dec's range of 1.9% to 2.6%.
 
“Inflation has increased in recent quarters,” said Fed chair Janet Yellen, announcing the clearly-telegraphed rise in rates to a ceiling of 1.00%.
 
US headline inflation rose last month to a 5-year high of 2.7%.
 
With the Dollar falling again on the FX market this morning, Asian and European stock markets also followed Wall Street's strong gains after the Fed announcement, driving the MSCI World Index to new all-time highs.
 
Major government bond prices retreated, pushing yields higher, while commodities rallied 0.4% from the last 6 week's 7% drop.
 
Silver hit 4.3% post-Fed gains before falling back 15 cents from $17.56 ounce.
 
Prices to buy physical platinum in London's wholesale market gained 4.4% from Wednesday's 10-week lows, peaking at $973 before easing back $13 per ounce.
 
Chart of the USD platinum price, 3 months to 16 March 2017
 
The single-currency Euro meantime held its 1-cent jump versus the Dollar, trading at 5-week highs above $1.07 following the Fed announcement.
 
Results from yesterday's general election in the Netherlands showed the anti-Euro Freedom Party moving from 3rd to 2nd place, pulling 13% of the vote against 21% for the incumbent Liberal Party – itself down by one fifth, but now set to form a coalition with other groups, including the GreenLeft party, which quadrupled its number of seats.
 
An exploding letter this morning injured one person at the International Monetary Fund's HQ in Paris, a day after Germany's finance ministry said it received a parcel bomb posted in Greece, since claimed by a radical anarchist group behind a series of arson attacks in Athens over the last 9 years.
 
The government in Athens, together with its IMF and Eurozone creditors, last month missed what had been called a critical “deadline” for agreeing a new deal, almost 7 years since the first bail-out package.
 
Calling European monetary union “more resilient than many think” yesterday, free-market think-tank the Cologne Institute for Economic Research last month said Greece's poverty rate has risen 40% since the financial crisis of 2008.
 
With 2017 bringing a rash of debt repayment deadlines, and €7 billion due in July alone equal to almost 4% of Greece's entire 2016 economic output, the Greek government has reportedly asked for €3bn from the World Bank, the United Nations' agency dedicated to lending to developing nations.
 
Euro gold prices today spiked to 1-week highs above €1150, reversing one-third of the last fortnight's 5.6% drop from gold's highest level in 5 months against the 19-nation currency.
 
Gold priced in Sterling meantime rose briefly above £1000 per ounce , some 1.1% higher for the week so far, as the Queen gave royal assent to the Brexit Bill passed this week by Parliament.
 
The bill enables the Conservative Government of Theresa May – who said last April she would vote against Brexit in the UK referendum, warning it might prove “fatal to Union with Scotland” – to trigger Article 50 of the Lisbon Treaty and formally begin exiting the European Union.
 
May today repeated that a second Scottish independence referendum, now demanded by SNP leader Nicola Sturgeon, will not happen before the UK's 2019 EU exit
 
The Pound then rallied, knocking gold £5 lower, on news that today's “no change” decision on UK interest rates by the Bank of England was not unanimous.
 
Kristin Forbes, a US economics professor sitting as an external member, voted for a hike back to 0.50%, an all-time low before the 300-year old Bank cut its key rate in half last August following the Brexit referendum result.
 
Forbes and the rest of the Bank of England's MPC did all vote however to maintain its £435 billion QE holdings of British government debt, plus up to £10bn of investment-grade corporate bonds.

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK\’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen\’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector\’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.



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