Gold prices continue to head higher this week, as the metal has posted considerable gains on Tuesday. In the North American session, the spot price for an ounce of gold is $1291.43, up 0.59% on the day. There are no major US releases on the schedule.
The Catalan constitutional crisis has shaken up Spain, and it remains unclear whether Catalan President Carles Puigdemont will unilaterally declare independence from Spain. Catalonians voted in favor of independence, but the national government has refused to negotiate with the Puigdemont about session. On Sunday, a demonstration against the referendum attracted some 350,000 people, in a show of support for the Spanish government. If Puigdemont declares independence, Spanish Prime Minister Mariano Rajo has promised to take drastic action, which could include dissolving the Catalan parliament and even arresting lawmakers. Investors are casting a nervous eye on the economic ramifications of the crisis, which has been good news for gold. Two major banks, Caixabank and Sabadell, as well as several large corporations have announced they are relocating their legal headquarters from Barcelona to Madrid. The tensions have not affected the euro so far, but that could change if Catalonia defies Madrid and declares independence.
Turkish President Tayyip Erdoğan once promised a "no enemies" foreign policy, but Erdogan would be more hard-pressed to name some allies. The maverick Turkish leader now finds himself in a spat with none other than President Trump, after Turkey arrested a Turkish national at the US consulate in Istanbul. The US responded by suspending visa services, and Turkey has responded in kind, suspending visas for US citizens. The Turkish lire and Turkish stock markets have fallen, and nervous investors have responded by buying safe-haven gold.
The Federal Reserve stayed on the sidelines at its September policy meeting, but the markets are clearly expecting one final rate hike in December. According to CME FedWatch, the odds of a December rate hike are currently at 86%, compared to just 31% a month ago. Why the huge turnaround? A strong US economy has helped raise the odds, but the primary reason for the huge shift in market sentiment can be attributed to the Fed policymakers that have come out in support of a rate hike, notably Fed Chair Janet Yellen. The lack of inflation remains the most significant impediment to raising rates, but Yellen and other FOMC members have insisted that strong economic conditions will lead to higher inflation levels. Even if inflation does not move higher before 2018, the Fed now appears ready to press the rate trigger.
