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Gold Price Steady After Trump Nominates Powell for Fed Chair
Nov. 02, 2017 02:50PM PST
Precious Metals
US President Donald Trump has nominated Federal Reserve Governor Jerome Powell to take over for Janet Yellen in February 2018.
The gold price held steady after US President Donald Trump nominated Federal Reserve Governor Jerome Powell to lead the central bank when Chair Janet Yellen’s term ends in February 2018.
Gold was trading at $1,277.36 per ounce ahead of the announcement, and slipped to $1,276.60 right after Trump’s speech in the White House Rose Garden.
“Jay will bring extensive private-sector experience and real-world perspective to our government,” Trump said. “As a result he understands what it takes for our economy to grow, and just as importantly, he understands what truly drives American success.”
Trump selected Republican Powell over renominating Democrat Yellen for another four-year term as chair of the Federal Reserve. Trump also considered Stanford University economist John Taylor, former Fed Governor Kevin Warsh and White House Economic Adviser Gary Cohn.
“I will continue to work with my colleagues to make sure the Federal Reserve is vigilant to market changes and risks,” said Powell.
Powell, a former investment manager, has served on the Fed board since 2012. According to analysts, he is likely to continue with a gradual approach to normalizing policy, as he has backed Yellen’s overall direction on monetary policy.
“US monetary policy normalization has been and should continue to be gradual, as long as the US economy evolves roughly as expected,” Powell said in an October speech. “The expectation of gradual policy normalization should reduce the likelihood of outsized movements in interest rates.”
Commerzbank (OTCMKTS:CRZBY) economist Bernd Weidensteiner said a Powell pick would mean Trump had chosen the “least controversial” person for the job. “Under his chairmanship, markets would expect business as usual — which they obviously like,” he noted.
Investors have already priced in continuity in the Fed policy, and most are expecting one more rate hike before the year ends. The bank has increased interest rates twice this year and has signaled at least three more increases in 2018.
Another rate hike could be bad news for gold, which tends to fare better when interest rates are low and often struggles when interest rates increase. That’s because higher rates curb the investment appeal of non-interest-bearing assets like gold.
“Right now, we see prices supported above $1,270 until perhaps a week from now. But beyond that, when the Fed meets in December, we expect one more rate hike,” said OCBC analyst Barnabas Gan. “On that note, we are still bearish on gold and expect prices to touch $1,250 at year-end, underpinned by the rate hike.”
According to Julius Baer (VTX:BAER) analyst Carsten Menke, the gold price could sink as low as $1,200 by the end of the year. “We think further rate rises are on the cards, which should support the U.S. dollar and yields,” he said.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
