Gold in Decline as U.S. Rate Hike Decision, Dutch Election Loom
Gold Continues to Fall Despite Political Uncertainty
Gold prices have dropped below $1,200 an ounce as many anticipate the U.S. Federal Reserve to raise interest rates, with Dutch political uncertainty not being enough to generate gains for gold.
Many anticipate Fed Chair Janet Yellen to announce today that interest rates in the U.S. will be receiving a hike. Currently, the priced-in probability of a rate hike implied in the Fed funds futures stands at 100%, meaning the effect will be limited in terms of market impact. (Source: “Gold Prices May Rise as Fed Clings to Status Quo After Rate Hike,” DailyFX, March 14, 2017.)
A different announcement during Yellen’s talk, however, could send waves in the market.
Gold prices were also expected to see a rise due to the political uncertainty in the Netherlands. Today, the Dutch cast their votes in their federal election. With anti-Euro populist Geert Wilders and his Party for Freedom expected to take in a significant portion of the vote, analysts expected to see a surge in gold prices due to this political uncertainty.
Polls close at 9:00 p.m. local time, 4:00 p.m. EST. Results are expected to come in as soon as one hour after the stations have shut down.
Two traditional functions of the precious metal have been to hedge against uncertainty (Dutch elections) and to act as a hedge investment against inflation and a flagging U.S. dollar (interest rate hike).
With the dollar expected to rise, set against the political turmoil in the Netherlands, gold prices falling shows that investors are more focused on the future strength of the dollar versus anti-euro sentiments, at least for the moment.
Physical gold in India dropped for its sixth straight sessions as well. India accounts for a large portion of the world’s purchasers of physical gold. Along with China, the two countries make up roughly half of the world’s purchasers of physical bullion. (Source: “Gold prices drop for 6th session on sluggish demand,” livemint, March 15, 2017.)
Demand for gold in India in 2016 was the lowest it had been since 2009, largely due to rising gold prices. (Source: “How Gold Prices Have Reacted to the Anticipated Fed Rate Hike,” Market Realist, March 14, 2017.)
Gold prices are currently set at $1,199.