Gold higher as Trump attacks the Fed and strong dollar

Ole Hansen

Head of Commodity Strategy

Gold trades higher for a third day after President Trump, speaking at a private fund raiser on Friday and in an interview with Reuters, said that he was “not thrilled” with the Federal Reserve continuing to raise rates.

Under the chairmanship of Trump appointee Jerome Powell, the US Fed Funds rate has been raised three times on top the two hikes during the earlier part of Trump's presidency.
Enlarge
While not directly challenging the independence of the Federal Reserve he nevertheless complained that Powell hasn’t proved to be the cheap money chairman he expected while saying “I believe in the Fed doing what’s good for the country”.  

The market responded by sending the dollar lower with the euro breaking back above 1.15 and thereby removing some of the weakness that emerged last week in response to Italian budget risks and EU bank's exposure to emerging market debt (most notably) Turkish debt.

Meanwhile in China, the People's Bank of China fixed the yuan at 6.8360, a three-week high. This adds further credence to the emerging belief that China has put a line in the sand at 7.00 below which they won’t allow its currency to weaken against the dollar. 

Given the continued and high correlation between gold and yuan, this development has also helped in providing some fresh support for the yellow metal.
Enlarge
Trump speaking up against the strong dollar in general and the continued recovery of the Yuan has seen gold put together a three-day run of gains. However, funds holding a record short three times the size of the previous one in December 2015 have not yet showed any signs of cutting back. For that to happen the dollar would need to show further signs of stabilising while the price at a minimum needs to break back above $1,205/oz, the previous low.
Enlarge
Source: Saxo Bank
In the short term, Trump expressing his concerns about rising rates will put some focus on Wednesdays release of the Fed minutes and the upcoming Jackson Hole symposium this coming weekend where Jerome Powell will speak on Friday.

The narrative is arguably that global markets will remain in a fragile state until the Fed backs off its quantitative tightening and rate hiking regime, with the risk of a real crisis linked to EMs' overindulgence in borrowing USD since the global financial crisis.
Should Powell unexpectedly blink and signal a slowdown in the tightening process, the dollar could see some additional selling and potentially send gold on a path to recovery.

You can access both of our platforms from a single Saxo account.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)