Fundamental Analysis

Gold Moves Higher Despite Strong Employment, Mfg. Data


Gold has rebounded on Thursday, after three straight losing sessions. In the North American session, the spot price for an ounce of gold is $1287.74, up 0.54% on the day. On the release front, unemployment claims fell to 222 thousand, well below the estimate of 240 thousand. Manufacturing data was also strong, as the Philly Fed Manufacturing Index jumped to 27.9, crushing the estimate of 21.9 points. On Friday, the US publishes Existing Home Sales and Fed Chair Janet Yellen speaks at an event in Washington.

The markets are keeping a close eye on who will replace Janet Yellen as head of the powerful Federal Reserve. Yellen is due to finish her 3-year term in February 2018. Yellen is apparently interested in serving a second term, but President Trump is looking at other options. Trump has not been complimentary towards Yellen, although it's hard to argue that Yellen has not done an admirable job. Yellen has ended quantitative easing, raised interest rates and started to unwind the Fed's balance sheet. Trump's shortlist includes Jerome Powell, Kevin Warsh and John Taylor. Trump may lean towards Taylor, an economist who is considered more hawkish on policy than Yellen. Under Taylor, interest rates would likely move substantially higher than the current 1.25%, and a rate hike early in 2018 could strengthen the US dollar.

The Federal Reserve is on track for a third and final rate hike in 2017. Fed Chair Janet Yellen has sounded positive about the economy and says that she expects inflation to move higher. The markets have picked up on this message, and the odds of a December hike have jumped to a sizzling 91 percent. Just one month ago, the odds were 50-50 that the Fed would raise rates at the December meeting. Low inflation levels have been a key reason that the Fed has been reluctant to raise rates, but policymakers insist that inflation will move closer towards the Fed's inflation target of 2 percent.

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