Trump, UK and the Middle East drive uncertainty
By GoldCore
GoldSeek.com
Thursday, 1 June 2017
Gold hits five-week high
Reaches $1,273.74/oz, highest since April 25th
Sterling recovers after UK polls point towards a hung Parliament
Expected Fed-tightening capped gains
90-dead in Kabul, further signs of increasing tension in Middle East
Trump expected to pull out of Paris Accord and Trump’s anti-Iran axis already feuding
Yesterday gold hit $1,273.74/oz, a level not seen for five weeks. Analysts point to some safe-haven demand for the yellow metal on account of the geopolitical tensions, upcoming UK elections and tomorrow’s non-farm payroll data.
We suggest investors look beyond data releases and political peacocking, and instead look at what the greater picture shows which is uncertainty on all fronts.
All about the Federal Reserve
Amongst mainstream financial analysts, all eyes appear to be on the expected Federal Reserve rate hikes. Thomson Reuters data shows traders see an 87% chance of a 25-basis-point hike at the next Federal Reserve meeting, this month.
Softer economic data of late, may mean that the Janet Yellen and her team might not be so keen to ramp up rates this month. Investigations into Russia’s alleged involvement in the 2016 U.S. election and possible collusion with Trump’s campaign also have clouded the prospect of a rate hike next month. The plan was for two further rate hikes this year in order to tighten the central bank’s balance sheet.
Fed policy tightening is expected to be negative for gold. But times might be changing as we note that in both December and March, following rate rises, gold decided to rally. This might be on account of expectations of over-tightening by the Fed and which would tip the country into a recession. Good news for gold.
Should the Fed over tighten, then they are likely to return forward guidance. As we know this is a great environment for the gold price due to increased inflation and a weaker currency.
Jitters over UK elections
In what feels like groundhog day for many UK-voters, there will be an election next week. To listen to the international media one could be forgiven the election is about Brexit. It is a general election which has consequences far beyond Brexit negotiations. Many of these consequences are unknown, which suggests a positive environment for gold regardless of the outcome.
When the election was initially called it seemed as though Mrs May’s election was a dead cert, however the polls suggest it might not be so easy. This morning news of a YouGov poll commissioned by the Times show Mrs May has a battle ahead of her. YouGov found the Conservative lead has slipped dramatically in recent weeks and is now within the margin of error. In April, when the election was first called, the Tories had a 24-point lead over Labour.
The YouGov Poll also found 30% of respondents think Jeremy Corbyn would be a better Prime Minister, this is the highest it has ever been. Meanwhile, Teresa May’s personal favourability has slipped to by 2%, to 43%.
Investors would be prudent to remember that whilst Mrs May is using the “promise of Brexit” to improve the country’s fortunes, the outcome of the ‘divorce’ remains unknown regardless of who is elected. With a Conservative victory the market might feel slightly reassured as there is no change in management, however we are still unsure how Brexit will actually look. A Labour victory is effectively double the uncertainty as we have not seen Corbyn lead, let alone run a Brexit negotiation.
The Rest…HERE
