Chart 3: Gold prices over the last year.
This week, the Fed holds its first meeting in 2018, the last meeting with Janet Yellen as the Fed’s Chair. As there is no press conference scheduled after the upcoming meeting, the Committee will likely keep its monetary policy unchanged. However, as the composition of voters in the FOMC will change, the U.S. central bank may send some hawkish signals. Gold bears may take advantage of it. Be prepared, the March hike is coming.
After Mnuchin’s words that “a weaker dollar is good”, the greenback registered a steep slide. The latest comments from the BoJ and the ECB didn’t help the U.S. dollar. Kuroda believes that inflation in Japan is close to target, while Draghi’s tone on the exchange rate was rather moderate. Some traders were afraid that the ECB would try to halt the euro’s rally in a more decisive way. It didn’t.
What does it mean? It should be now clear that the ECB is comfortable with a strengthening euro – it implies that the euro has more room to appreciate against the U.S. dollar. It’s bullish for gold.
However, the Fed has its own meeting this week. We could see a hawkish strike, especially that it will be the last Yellen’s meeting and she has nothing to lose. The changing composition of the policy committee could also point to a more aggressive pace of rate hikes in 2018. If that happens, the U.S. dollar may catch its breath, which would exert downward pressure on gold prices. Anyway, gold will remain in the orbit of central banks’ influence. For good or bad. Stay tuned.