Gold has dropped close to 1% on Wednesday, erasing the gains from the Tuesday session. In North American trade, gold is trading at $1279.21 per ounce. On the release front, there are no major US events. Crude Oil Inventories posted a drawdown of 1.0 million barrels, matching the forecast. On Thursday, the US releases the Philly Fed Manufacturing Index and unemployment claims. As well, US Treasury Secretary Steven Mnuchin will delver remarks in Washington.
Gold prices have climbed sharply in April, boosted by market jitters over the crisis in North Korea and the French presidential election, which remains almost a dead heat between the four leading candidates. US vice-president Mike Pence is in Japan for trade talks, but has also reassured his hosts that the US stands firmly behind Japan and South Korea and will not tolerate a nuclear North Korea. If the saber-rattling between the US and North Korea continues, gold could quickly reverse directions and head towards the $1300 level.
What’s next for the Federal Reserve? Based on not-so-subtle hints from the Fed, the markets are expecting two more rate hikes in 2017. There have been calls from some Fed policymakers to raise rates three more times, but this seems unlikely, given disappointing retail sales and CPI numbers in March. These weak numbers are likely to make the Fed more dovish about the US economy, and have prompted the Atlanta and New York Federal Reserve banks to lower their outlook for US economic growth for the first quarter of 2017. The Fed can point to a labor market that is close to capacity as well as strong consumer confidence, but this has not translated into stronger consumer spending, a key driver of economic growth. The odds of a rate hike in June have dropped to 45% according to the CME Group, down from 65% earlier in April. This has made gold less attractive.
