The Week Ahead In Gold
On Friday, January 20th, Donald Trump was inaugurated as the 45th President of the United States. With the new administration comes a great deal of economic optimism, along with a lot of uncertainty and disapproval.
Protests were held the day of the inauguration as well as on Saturday, and there appears to be a significant divide in the country. Although the rhetoric from both sides is likely to continue, the American people will also likely look forward to seeing progress made by the new administration.
The notion of lower taxes and increased fiscal spending has boosted stocks and the dollar in recent weeks while also fueling a rise in interest rates. The new administration has thus far, however, not provided much in the way of details as to how it plans on accomplishing its objectives.
A recent Trump press conference did not provide any more clarity, and the lack of further details appeared to let some steam out of the so-called “Trump” rally.
Investors are likely to give the new President the benefit of the doubt, and may remain patient as significant changes in economic policy do not happen overnight. That being said, however, there will come a point when investors will want to see concrete progress being made.
With the new President now in office, markets may also begin to focus more on the economic data stream and the Fed. The issues of interest rates remains a focal point for gold and silver investors, and there appears to be some debate about the path of rates.
In December, the Fed not only raised rates for the first time in a year but it also now forecast three rate hikes in 2017 as opposed to two. Some analysts believe that the pace of further rate hikes by the central bank could potentially be even faster, with possibly even four hikes being seen this year.
On the other hand, some analysts believe that two hikes is still the likely scenario, and as of right now Fed Funds futures contracts are pointing to the first hike of at least 25 basis points taking place in June.
Of course, a lot can happen between now and then and the Fed’s plans regarding rates could potentially change based on numerous factors. This week’s GDP data due out on Friday could potentially provide a good clue as to the strength of the economy, and a weak reading could potentially influence the central bank.
Gold has been building some momentum in recent weeks as the Trump rally showed some signs of fading. An ongoing lack of details about the new administration’s policies could potentially keep interest in gold on the rise, while further economic optimism could potentially derail the recent rally in the yellow metal.
The dollar will also be an area of great interest to investors in the coming months. The dollar has pulled back from its recent highs, and recent comments by President Trump about the strength of the dollar could potentially weigh on the greenback. From current levels, the currency seemingly has the potential to make a significant move either way, and the direction of the dollar will likely be dictated by economic policies put forth by the new administration in the coming weeks and months.