The situation in the market this week was seriously influenced by political scandals and contradictory statements of the Fed’s head. The June data on the consumer price index in the US added fuel to the fire.
How all that affected the value of the American currency and gold prices? Read on to find out!
Tuesday 11th, was the day when an episode of political correspondence dropped the US dollar. The scandal, which weakened the position of the dollar by 0.3%, happened due to the meeting of Donald Trump Jr. with Russian lawyer Natalia Veselnitskaya.
Gold prices in turn grew to $1,215 under the influence of the statement of Lael Brainard, the member of the Fed Board, about the need to "slowly move away from ultra-easy monetary policy." In her opinion, the improvement of the situation on the labor market had no positive effect on inflation.
"If the data continue to confirm a strong labor market and firming economic activity, I believe it would be appropriate soon to commence the gradual and predictable process of allowing the balance sheet to run off.”
On Wednesday 12th, the price of gold reached $1,221 per troy ounce due to the testimony of Janet Yellen at the Congress when she spoke of the further tightening of monetary policy. Her speech slipped the US dollar by 70 points: "There is uncertainty about how and to what extent the inflation will respond to the US economic changes."
Analyst at the Canadian Imperial Bank of Commerce, Bipan Rai, commented on the Janet Yellen's statement: "Yellen veered slightly in the dovish direction, which makes sense given the soft inflation readings of late.”
On Thursday 13th, gold prices slightly decreased, facing $1,217. The vulnerability of the US dollar supported gold prices which, in turn, became the object of pressure for another political statement by Janet Yellen who predicted more rate hikes.
Yellen believes that the labor market shows high demand for work force, which provides pressure on the wages. She believes that "it is premature to say we are not on the path of 2% inflation” and that nothing indicates the end of inflation growth in the foreseeable future.
On Friday 14th, gold prices jumped to $1,228 due to a substantial growth in the volume of gold imports to India. In just one month, there was a three-fold increase recorded compared to the same period last year.
Andrey Shemetov, Managing Director and Head of Global Markets at Sberbank CIB, noted:
“Sberbank CIB plans to expand its business relations with both corporate clients and financial institutions in India by growing its current customer base and increasing the number of precious metal delivery locations. In 2017 it is planned to deliver between 20 and 25 tonnes of gold to up to 20 locations throughout India”.
On Monday 17th, the price of gold kept rising to reach $1,230. The precious metals market is still under the influence of statements by the Fed’s head and the report of the US Treasury. According to the published data, the US government spending exceeds revenues by $96 billion. The budget deficit for the last 9 months is 31% more than last year.
The US Congressional Budget Office forecast:
"The budget proposed by Trump will increase GDP growth by 0.1% in the next 10 years in comparison with the main management scenario. The deficit, taking into account Trump's budget in 2018, will be slightly higher than the baseline scenario suggests, equivalent in 2019 and lower between 2020 and 2027. The revenues will be $0.9 trillion lower in the next 10 years than the base scenario assumes.”
Analysts at the British investment bank HSBC came out with a positive outlook for the period until 2019:
"In the second half of 2017, the yellow metal will receive support from the weakening of the dollar and euro... Investors shall revert to gold to protect their capital from sharp fluctuations in the stock market. The demand for physical gold will continue to be an important supporting factor."
According to the analysts, the price per ounce in 2019 might increase to $1,330.
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