Gold has stated the week with slight gains. In Monday’s North American session, the spot price for an ounce of gold is $1331.69, up 0.16% on the day. On the release front, New Home Sales dropped to 593 thousand, well off the estimate of 655 thousand. This marked the smallest gain since August. Traders should be prepared for a busier Tuesday. The US releases durable goods and consumer confidence reports. As well, Federal Chair Jerome Powell will testify before the House Financial Services Committee.
Gold continues to show volatility. The base metal lost 1.5% last week, after climbing 2.2% a week earlier. Concerns that strong US numbers could stoke inflation and more rate hikes sparked the recent turbulence in global stock markets. This has triggered volatility in gold, as gold prices are sensitive to moves (or expected moves) in interest rates. The Fed is currently projecting three rate hikes this year, but if inflation continues to move upwards, the Fed could press the rate trigger four, or even five times in 2018. If the Fed does revise its rate hike projection upwards, gold prices would likely move downwards.
It hasn’t been a smooth ride for Jerome Powell, who took over as chair of the Federal Reserve from Janet Yellen earlier this month. Powell received a rude welcome from the markets just after moving into his new office, as the global stock market correction erased some $4 trillion in valuations. The volatility forced Powell to make a public statement, reassuring the markets that the Fed was closely monitoring the situation. Powell will be on center stage this week, when he makes separate appearances before the House of Representatives and the Senate. After the recent stock markets volatility, Powell may opt to play it safe and keep away from any splashy headlines, which could lead to more fluctuation in the markets. Powell could choose to focus on the strong US economy and the Fed trimming its balance sheet, and steer away from a discussion of accelerating rate policy in order to head off higher inflation.
