1. Newsroom
  2. Political uncertainty weighs on the yellow metal
Menu
Insight 15.03.2018

Political uncertainty weighs on the yellow metal

Political uncertainty weighs on the yellow metal

Gold retreated earlier in March as trade and geopolitical tensions seemed to abate following President Trump’s announcement.


Gold retreated earlier in March as trade and geopolitical tensions seemed to abate following President Trump’s announcement that allies, such as Canada and Mexico, would be exempt from the proposed controversial measures to impose tariffs on US steel and aluminium imports.

At the same time, the dollar strengthened on the news that North Korean President Kim Jong Un and Donald Trump might meet by May, and that Kim Jong Un has promised to suspend nuclear and missile testing.

Also weighing on gold was the ECB’s latest meeting. Even though the central bank left rates and its QE programme unchanged, the ECB removed its forward guidance on QE, stating that it, “…stands ready to increase the asset purchase programme in terms of size and/or duration” if required, but it maintained a cautious stance, declaring that it would follow developments on the EUR and may adapt its policy if necessary, i.e. in the case of a strengthening euro, which would significantly change its inflation scenario; the forward guidance on rates would then change accordingly.

For the time being, increased expectations of higher US interest rates and bond yields rising at the end of February to four-year highs have been weighing on the yellow metal; especially following the latest strong gains in non-farm payrolls. Furthermore, Jerome Powell’s hawkish testimony about economic growth and inflation on 27 February, coupled with the publication of the minutes of the Federal Reserve’s 30-31 January meeting, showed that members were confident about the need to keep raising interest rates.

An increasing number of observers anticipate the possibility of four interest rate increases this year instead of the three previously expected, and this could start as soon as at this month’s FOMC meeting on 21 March. The Fed fund futures market is, however, still only pricing in three increases.

We expect the gold price to continue to be range-bound at around the USD 1,300 level.

UBP Market Insight

POLLINI_Nevine_UBP_72dpi-0628.jpg

Névine Pollini
Senior commodity analyst

Expertise

Hedge funds

UBP is one of the longest-standing investors in hedge funds and a leading European player in the sector.


Further reading

Insight 17.03.2023

Learning from the mistakes of the 1970s

2023 began with market optimism that the US could successfully navigate its battle with inflation. Recent data have confirmed our suspicions that getting inflation back to the Fed’s 2% target will be more challenging than markets had been assuming.

Insight 23.02.2023

Adapting Advisory portfolios to the improved fixed income outlook

As a decade of yield repression comes to an end, building a fixed income portfolio with an acceptable yield has become an easier task. Given a deteriorating economic background and hawkish policymakers, we believe in harvesting the attractive yields offered by short-term quality bonds, which currently have the best risk-return profile.

Insight 21.02.2023

Japan’s equity market: small is beautiful

The steep fall in valuations that started at the end of 2021 disproportionately affected the innovative growth segment of the Japanese market. With the stronger yen, companies that are less vulnerable to global cycles could prove to be the ones to consider.