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LAWRIE WILLIAMS: Gold up through $1,300 despite hawkish FOMC

Presidents Trump and Kim Jong Un both issued self-congratulatory statements to domestic and international media following their historic 5-hour meeting in Singapore but in truth nothing substantial in the way of real agreements resulted.  Today’s politics are all about presentation – not substance.  On the face of the communiqués issued by both parties, geopolitical tensions should have eased as a result of the talks and gold to have fallen as a result.  In the event gold was virtually unmoved which is an indicator the much-boosted summit between the two leaders was something of an irrelevance in the gold market.

All eyes in gold price terms thus then turned to the 2-day FOMC meeting when the U.S. Fed raised interest rates again by the expected 25 basis points.  This had been discounted by the markets so did not initially move the gold price. However, the language of the subsequent press release was much pored over for any hints of faster tightening or otherwise over the remainder of the current year – or into 2019 – and this was perceived to suggest there would be two more interest rate rises this year and that the Fed might be accelerating its tightening.

This outcome might have been expected to put a dent in the gold price but in the event the opposite occurred - the dollar fell a little and gold moved back up through $1,300 in European trade.  Whether it will be allowed to stay there once the U.S. markets open remains to be seen.

To an extent it was perhaps the removal of uncertainty over the Fed’s future path which helped the gold price along, but the path of the yellow metal only served to emphasise itys unpredictability. Silver did even better and is back above $17 and the gold:silver ratio is back to a more respectable 76.9 after heading well above 80 only a week or so ago.  We did predict the ratio would come back thus enhancing silver’s investment status and we suspect the ratio will fall further down to 70 or below in the weeks and months ahead, particularly if gold continues its upwards path.

There are of course plenty of potential geopolitical flash points out there, even if the U.S. North Korean supposed accord continues, which could yet influence the gold price positively going forwards one way or the other.  The fact that gold has held up well , indeed has risen, under what may have been seen to be heavy pressure perhaps bodes well for precious metals over the remainder of the year.  We would still not be surprised to see gold end the year above the $1,400 mark and silver at $20 or higher.

14 Jun 2018 | Categories: Gold

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