Gold has edged higher in the Tuesday session. In North American trade, the spot price for an ounce of gold is $1337.52, up 0.26% on the day. On the release front, it’s another quiet day in the US. The sole event of the day, the Richmond Manufacturing Index, slowed to 14, well off the forecast of 19 points. On Wednesday, the US will publish Existing Home Sales.
The US government shutdown turned out to be little more than a nuisance, with only one working day lost. On Monday, the Senate voted 266-150 to extend government funding until February 8. This stopgap measure will enable the government to provide services during that time, but the lawmakers will need to hammer out a longer-term agreement, as these short extensions are just band aid solutions. The Democrats held up a funding bill last week, in order to force the Republicans to the table over illegal immigration. The Republicans have promised to hold a vote on this issue, but many Democratic lawmakers remain skeptical that President Trump and the Republicans will deal in good faith over immigration.
What can we expect from the Federal Reserve over the next few months? The Fed was busy in 2017, raising interest rates three times. This month, the Fed began to trim its balance sheet, to the tune of $10 billion/mth. Next up is a policy meeting on January 31. A rate hike is a virtual certainty, with CME Fed Watch pegging the odds of a quarter-point hike at 98.5%. Although this means that a rate hike has been priced in by the markets, the dollar could nevertheless gain ground after a hike, as a rate increase would signify an important vote of confidence in the economy by the powerful Fed. If the US economy continues to expand at a clip of around 3 percent, there is a strong likelihood of a second rate hike in the first half of 2018.
