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LAWRIE WILLIAMS: Gold price knocked on renewed talk of March Fed rate rise

The last day of February saw not only a perhaps more ‘presidential’ address by Donald Trump who, at last, appears to be modifying his rhetoric with a slightly more conciliatory tone on some of his more controversial proposals, but also statements from some of the more influential Federal Reserve executives raising the likelihood of an early Fed rate increase.  The Fed statements in particular knocked the gold price back more than $10, although how a Fed rate increase, which will likely raise the US dollar index, will sit with a President who thinks the dollar parity is too high remains to be seen.  Silver, however, remained reasonably strong in comparison with gold, seeing the gold:silver ratio fall to around  67.8 – but still substantially higher than the 65 we have been predicting as likely to be reached some time during the year.

According to Reuters, New York Fed President William Dudley said that the case for tightening monetary policy "has become a lot more compelling" while John Williams, president of the San Francisco Fed, said he personally did not see any need to delay any rate increases.  Indeed he went even further to say that in his view a March rate increase was very much now on the table.

The dollar did indeed rise on these statements and Reuters further reports that the likelihood of a March increase is now seen as greater than 50% - up from around 20% only a week earlier.  An important part of the gold price decline, but not all, will have been due to the rising dollar index.

As for President Trump’s speech to both houses of Congress, apart from stating intentions regarding tax breaks for the middle classes, massive increases in infrastructure and defense spending, replacing Obamacare and a rejigging of immigration controls it was short on any detail on any of these proposed policies, and how to pay for the higher expenditures.  The general consensus seems to be that he has pulled back, at least a little, from some of his more contentious statements as the realities of the Presidency, and the realisation that the President’s actual capabilities of imposing some of his more divisory plans may not be as straightforward as he had assumed.

In general overseas equities markets have reacted favourably to the Trump speech.  It remains to be seen whether the U.S. ones follow suit given the lack of clarity with regard to stimulatory measures, while the Fed threat of higher interest rates and a strong dollar may depress the prices of companies which are dependent on exports.

At the time of writing, the gold price had been taken down to a little above $1,240 from the mid $1,250s yesterday, and silver to $18.29 leaving the gold:silver ratio at 67.81.

01 Mar 2017

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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