Gold has posted gains in the Thursday session. In the North American session, the spot price for one ounce of gold is $1301.14, unchanged on the day. On the release front, consumer data was positive, as Personal Spending and PCE Price Index both beat their estimates, with readings of 0.2% and 0.6%, respectively. There was more good news as unemployment claims dropped sharply to 221 thousand, beating the estimate of 228 thousand. On Friday, British Manufacturing PMI is expected to dip to 53.5 points. In the U.S, the focus will be on employment data, with the release of nonfarm payrolls and wage growth.
The political uncertainty which has gripped Italy has shaken up the markets and boosted gold prices this week. President Sergio Mattarella is looking for a way to avoid new elections, after an inconclusive election in March. The two largest parties, the League Nord and the Five Star Movement proposed a eurosceptic finance minister, but this was blocked by the pro-European Matterella. This triggered a political crisis which led to a selloff of Italian stocks and bonds. The prime minister-elect, Giuseppe Conte, then announced that he had withdrawn his mandate to form a government, and Mattarella invited Carlo Cottarelli, a former IMF economist, to form a temporary technocrat government. There was talk of an election in the fall or even earlier, but Mattarella has agreed to let the two parties again try and form a coalition government. The twists and turns in this saga will likely continue to have an impact on the direction of gold prices.
Is the Federal Reserve moving closer to a neutral monetary policy? Recent statements by FOMC policymakers appear to support such a conclusion, which would mean that the Fed would let the economy ‘ride on its own steam’ without intervening by adjusting interest rates. In the meantime, the Fed continues to project two more rate hikes in 2018, after raising rates by a quarter-point in March. The most likely dates for a rate hike are June and September. A fourth hike in December is possible, with a likelihood of about 40%. The minutes of the May meeting noted that policymakers would consider allowing inflation to rise above the Fed’s 2% target for a temporary period, which means that the Fed would not rush to raise rates based on the inflation target.
