On Friday, Fed Chair Janet Yellen spoke publicly for the first time since March. What do her remarks mean for the gold market?
Markets are constantly talking about the prospects of the Fed hike in the coming months. The recent FOMC minutes have convinced investors that the June meeting is live. And several Fed officials reaffirmed that next month is on the table. For example, two weeks ago, Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams said that they assumed two to three rate hikes this year. Last week, Richmond Fed President Jeffrey Lacker claimed that “the case would be very strong for raising rates in June”, while New York Fed President William Dudley stated: “If I’m convinced that my own forecast is on track, then I think a tightening in the summer, the June-July time frame, is a reasonable expectation”.
However, Fed Chair Janet Yellen remained silent until Friday. Then, she was awarded the Radcliffe Medal at Harvard University and provided some comments on the likelihood of higher U.S. interest rates. She said:
“The economy is continuing to improve. We saw weak first quarter growth and relatively weak growth at the end of last year. Growth looks to be picking up from the various data we monitor, and if that continues and the labor market continues to improve, and I expect those things will occur, we’ll continue to monitor incoming data and assess risks to the outlook. But it’s appropriate for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in coming months such a move would be appropriate.”
Although Yellen did not specify any particular month, her remarks were definitely hawkish. In the past, she used to be relatively dovish compared to her colleagues, so Yellen’s shift is critical. Moreover, she declared that she expected that data could justify a rate hike in the coming months. She usually refrained from any forecasts, so it was another hawkish turn from Yellen.
Her remarks are clearly negative for the gold market. Indeed, gold hit the lowest level since mid-February, felling below $1,200 for a while, after Yellens’ comments. Her remarks will increase the odds of a Fed hike in June or July. Therefore, the price of gold should remain under downward pressure, especially that it is possible that the market has not yet priced in Yellen’s hawkish shift due to Memorial Day on Monday.
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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