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.
Senior commodity analyst