Gold higher as Trump attacks the Fed and strong dollar
Head of Commodity Strategy
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.
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.
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.