Gold has posted small gains in the Tuesday session, and is down 0.16%. In North American trade, spot gold is trading at $1263.31 per ounce. In the US, PPI dropped to 0.0%, matching the forecast. On Wednesday, we’ll get a look at key retail sales and CPI reports. As well, the Federal Reserve is expected to raise interest rates by a quarter-point, to 1.00 percent. With such a large number of major events, traders should be prepared for volatility in gold prices on Wednesday.
The political turmoil in Britain could worsen and send jittery investors to safe-haven gold. It has been a week to forget for Prime Minister Theresa May, as the aftershocks of her stunning election debacle continue to rock the country. The reeling Conservatives find themselves short of a majority in parliament, and have pinned their hopes of remaining in power on reaching an agreement with the DUP, a small conservative Irish party. However, no deal has been reached as of yet, and the continuing political vacuum could push gold prices higher. Meanwhile, the Brexit negotiations are scheduled to commence on June 19, but there are signs that Europeans will ask for a delay in the start of talks, given the precarious political situation in Britain. On Tuesday, Denmark’s Finance Minister, Kristian Jensen, said that he hoped that the inconclusive UK vote would lead to a "time out", so that the UK can rethink its approach to Brexit. The Europeans are delighted by May’s troubles, as she will have to soften her approach her previously hard-nosed approach to Brexit. If the new government expresses a willingness to negotiate a "soft Brexit", which keeps the UK in the single market, this would be a positive development for British businesses.
The markets are keeping a close eye on the Federal Reserve, which will make an interest rate announcement on Wednesday. The markets have priced in a quarter-point hike, at close to 100%, so it would be a major shock if the Fed doesn’t make a move. What’s in store after that? An additional rate hike seems much less likely in the third quarter, with the CME forecasting the odds of a September move at just 28%. The markets are skeptical about another rate hike unless the political situation in Washington shows signs of stabilizing. The Trump administration remains in damage control mode, as it’s difficult to assess the damage from the dramatic evidence of ex-FBI director James Comey. The Trump administration continues to lurch from one crisis to another, and President Trump seems disconnected not just from the Democrats, but from many Republican lawmakers as well. The Fed and the markets have serious concerns with regard to Trump’s ability to move forward with his economic agenda, and this sentiment could weigh on the US dollar.
