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Dovish Fed Helps Gold Post Best Weekly Gain Since February

March 17, 2017 at 16:38 by Andrew Moran

A dovish Federal Reserve, a weaker US dollar, higher inflation concerns, and uncertainty over US President Donald Trump‘s policies have all contributed to gold‘s best weekly run since early February. The yellow metal is climbing a little bit higher to end the trading week.

April gold futures rose $2.40, or 0.20%, to $1,229.50 per ounce at 16:05 GMT on Friday. Gold is trading at its highest level since early March, and is poised to record a weekly gain of roughly 2.4%. This is the best weekly advance since the week ending February 3.

Silver is also eyeing a stellar weekly gain. May silver futures increased $0.02, or 0.12%, to $17.35 an ounce. Silver is set to post a weekly gain of 2.6%, the best in about a month.

Year-to-date, gold is up more than 6% and silver is up close to 10%.

The US central bank announced on Wednesday that it would raise interest rates for the second time in three months. According to the Federal Open Market Committee (FOMC), the key target rate would rise by 25 basis points to a range of 0.75% to 1%. It also hinted at two more rate hikes sometime this year. The Fed was cautious about moving too quickly on interest rates and refrained from quickening the pace of monetary tightening, something that disappointed investors.

The US dollar is ending the trading week at a five-year low as the greenback shed 1.1% this week.

rising-rate environment and a stronger dollar are bad for commodities like gold and silver. With rates going up, it lifts the opportunity cost and sends traders into yield-bearing assets. With a surging dollar, it makes the yellow metal more expensive for foreign investors to purchase.

Global markets have renewed their fears of inflation, especially with central banks worldwide — the Fed, the European Central Bank (ECB), and the Bank of England (BOE) — beginning to wane away from implementing aggressive quantitative easing, or QE, measures.

Despite maintaining a pro-business agenda, many investors are concerned that the US president will be unable to move forward with many of his proposed policies. If President Trump does succeed in enacting these measures, such as $1 trillion infrastructure spending plans, tax reforms, and across-the-board tax cuts, then the Fed may boost its rate hike initiatives. This would be a negative for gold.

In regards to the European political situation, markets will have to wait until April 23 for France, where populism is maintaining its momentum, to head to the polls.

If you have any questions and comments on the commodities today, use the form below to reply.

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