Gold has posted slight gains in the Thursday session. In North American trade, spot gold trading at $1248.63 per ounce. In economic news, US unemployment claims rose to 241 thousand, matching the forecast. On Friday, the US publishes New Home Sales.
The Federal Reserve has surprised the markets with its hawkish stance, as underscored by last week’s rate statement. The statement mentioned that the Fed plans to reduce its balance sheet later in 2017, although it did not provide further specifics. The balance sheet has ballooned to $4.5 trillion, which accumulated after the 2008 financial crisis, when the Fed went on a bond-buying spree to stimulate the economy. The reduction will be gradual, but still marks an important change in direction for the central bank. On Wednesday, FOMC member Patrick Harker said that he was in favor of the reduction commencing in September. The Fed has hinted at one more rate hike in the second half of 2017, and the markets have circled December as the most likely date for a rate move. The CME Group has pegged the odds of a September hike at just 13%, compared to 18% a week ago. However, the odds for a December increase are at 49%, and this could increase if Fed policymakers continue to wax positive about the economy.
Although gold prices have struggled recently, the growing uncertainty over Brexit has prevented gold from falling even lower. It’s been a rough few weeks for British Prime Minister Theresa May, who gambled by calling an election earlier this month and squandered her majority in parliament. May is trying to cobble together so her political situation remains precarious. May will attend an EU summit in Brussels on Thursday, and will brief the Europeans on how Britain plans to treat EU citizens living in the UK after Brexit. It will be interesting to see the reception she receives from the European leaders. There is plenty of bad blood between the parties, and the players on both sides will need to control their egos and tempers in order to keep the divorce process amicable. Formal negotiations between the UK and the EU began this week, and both sides agreed that the first round of talks was held in a constructive atmosphere. However, if the negotiations fall apart, the repercussions could send shock waves in the markets, and gold could be the big winner.
