Gold's Rally Gets Booster Shot as Trump Picks Doves for the Fed
Gold resumed its rally on a cocktail of positive drivers, with weak data feeding expectations for easing from central banks.
(Bloomberg) -- Gold held its rally on a cocktail of positive drivers including weak macroeconomic data, sinking Treasury yields and expectations for fresh easing from the U.S. Federal Reserve.
Bullion held above $1,400 an ounce and rose to the highest since May 2013 ahead of a U.S. holiday Thursday. Donald Trump has tapped two economists to the Fed’s board who are both seen as likely to support the president’s call for lower interest rates. Meanwhile, weaker than expected U.S. payrolls and service industry data overshadowed a decline in jobless claims.
“The longer-term picture looks positive for gold,” Georgette Boele, coordinator of FX and precious metals strategy at ABN Amro Bank NV, told Bloomberg Television. Still, she suggested prices are probably overshooting at the moment. “The market has been too aggressive pricing in rate cuts” both from the Fed and other central banks, she said.
Gold traded at a six-year high as simmering geopolitical and trade tensions increase demand for havens. Earlier in the week, the metal was boosted by a run of weaker manufacturing activity from Asia and Europe, similar data from the U.S that disappointed investors, and tariffs against a longer list of European goods.
“What’s important is the European central banks all seem to be pretty dovish all of a sudden,” George Gero, a managing director at RBC Wealth Management, said by phone. That along with Trump’s dovish Fed picks and the weaker payrolls data, all amplify safe-haven demand for gold, he said.
Trump is “trying to shift the balance on the FOMC to super dove,” said Stephen Innes at Vanguard Markets Pte, referring to the rate-setting Federal Open Market Committee. Both picks require Senate confirmation. Investors will be watching jobs data on Friday for more clues on Fed’s moves this month.
Gold futures climbed as much as 2.3% in early trading before paring gains and settling hire at $1,420.90 at 1:30 p.m. on the Comex in New York. A gauge of the dollar held Tuesday’s losses, while Treasury yields sank to the lowest since November 2016. Holdings in gold-backed exchange-traded funds snapped 14 days of gains Tuesday, but are still near the highest since 2013.
Gold prices trading above $1,400 again suggest that demand remains strong, said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “It’s a rollback to the yesteryears of loose monetary policies, which whetted the appetite of gold bulls consistently.”
In other precious metals, silver gained on the Comex, while platinum and palladium gained on the New York Mercantile Exchange.
--With assistance from Justina Vasquez and Liezel Hill.
To contact the reporters on this story: Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net;Elena Mazneva in London at emazneva@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Steven Frank, Pratish Narayanan
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