Gold Resilient as Markets Price in March Fed Hike

European equity markets are expected to open a little higher on Thursday, continuing the trend over night that saw most Asian markets in the green and US indices smash their way to new all-time highs.

Just as it seemed that investors were starting to suffer a little bit of Trump fatigue, Wednesday produced the biggest daily gains we’ve seen this year in the US. It would appear that not only are investors not yet losing patience with Trump’s vague rhetoric, they’re also buying into the Fed’s view that more rate hikes are needed to prevent the economy running too hot.

Rate Hike Frenzy

Not all investors will agree with this belief of course but the very fact that March has gone from being almost fully priced out to almost 70% priced in and the probability of three rate hikes this year is almost 50%, and yet equity markets are rallying, is a good sign. It’s not too long ago that investors would have freaked at the prospect of one rate hike, let alone three in one year.

FedWatchFedWatchSource – Reuters Eikon Terminal

Of course, this may only be the case as long as investors continue to buy what President Trump has to sell and there is still a significant amount of underlying risk in the markets right now – largely political – which may explain why Gold – a traditional safe haven asset – is only trading 1.5% below its near-four month high. The yen, another safe haven play, has also continued to perform quite well throughout all of this, another sign that all is not as rosy as they may seem.

Gold DailyOANDA fxTrade Advanced Charting Platform

Still, the dollar hit its highest level since early January on Wednesday, busting through what had been a stubborn resistance along the way, and with interest rate expectations rising ahead of the Fed meeting in two weeks, further upside may be on the horizon which could further pressure Gold. Should the polls for the second round of voting in France continue to show a widening gap between Emmanuel Macron and Marine Le Pen – the likely two candidates to make it through the first – in favour of the former, then this may aid Gold’s move lower with the latter seen as being potentially disastrous for the euro area.

Gold Unchanged as Trump Speech Underwhelms Markets

The focus this morning will be on the flash CPI number from the eurozone, where inflationary pressures have been building – albeit largely driven by commodity prices and the weaker euro – fuelling the discussion on whether a further reduction in asset purchases from the central bank is warranted. We’ll also get the latest construction PMI from the UK, and unemployment data from Spain and Italy. This afternoon we’ll get jobless claims data from the US followed later on in the evening by a speech from the Fed’s Loretta Mester who, given her very hawkish stance, will likely add her voice to those pushing a hike in March.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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