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Gold's rally gets booster shot as Trump picks doves for the Fed

Jul 03 2019 08:58
Ranjeetha Pakiam

Gold resumed its rally above $1 400 an ounce on a cocktail of positive drivers, with weak data feeding expectations for fresh easing from central banks, Treasury yields hitting a two-year low, and the US president seeking to reshape the Federal Reserve board with two picks seen as doves.

Bullion extended the biggest one-day gain in three years as concern over slowing growth ticked up, and investors will focus next on data for US private hiring, factory orders and the services sector, which come on Wednesday. The jobs report for June on Friday will also be key in providing signals on the possible timing and scale of looser monetary policy by the Fed.

Gold is trading near a six-year high as central banks globally turn dovish, and simmering geopolitical and trade tensions boost demand for havens. Adding momentum to Wednesday’s upswing were the brace of nominations from Donald Trump to the Fed’s board, with candidates Christopher Waller and Judy Shelton likely to support the president’s call for lower interest rates.

President Trump is “trying to shift the balance on the FOMC to super dove,” said Stephen Innes at Vanguard Markets, referring to the rate-setting Federal Open Market Committee. Both picks require Senate confirmation.

Spot gold climbed as much as 1.4% to $1 437.88 an ounce, and was at $1 425.61 at 06:29. Prices surged 2.5% on Tuesday, the most since June 2016. Last week, bullion hit $1,439.21, the highest level since 2013.

‘Potential’ Fed Chairs

"If Trump is re-elected, he isn’t renominating Powell,” Capital Alpha Partners LLC’s Ian Katz said in a note, referring to the central bank’s chairperson. “So we need to think of Shelton and Waller as potential Fed chairs,” Katz said.

After raising interest rates last year in the face of criticism from Trump, Jerome Powell and colleagues are expected to cut at their next meeting at the end of this month. That move, should it happen, would aid bullion.

“The fact that gold prices are trading above $1 400 again suggests that demand for gold remains strong,” said Howie Lee, an economist at Oversea-Chinese Banking Corporation in Singapore. “It’s a rollback to the yesteryears of loose monetary policies, which whetted the appetite of gold bulls consistently.”

Holdings in gold-backed exchange-traded funds slipped to snap 14 days of gains, but are still near the highest since 2013. A gauge of the dollar dropped again, while Treasury yields sank to the lowest since November 2016.

Among recent data pointing to weakness, factory activity across Asia and Europe shrank in June, while the U.S. showed only meager growth, according to purchasing managers’ indexes. Australia executed its first back-to-back interest-rate cuts in seven years Tuesday.

In other precious metals, spot silver rose 0.1%, platinum advanced 0.1%, while palladium dropped 0.1%.

jerome powell  |  donald trump  |  sa economy  |  gold  |  gold mining


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