FxWirePro: Buzz in bullion after Trump’s inaugural and Fed’s hawkish rhetoric to prevail

Bullion for immediate delivery traded at $1,196.68 an ounce on Thursday, up 4.3 percent this year, according to Bloomberg generic pricing. Last year, it rose 8.1 percent to snap three annual declines even after dropping in the final quarter. Prices may average $1,210 this year, $80 more than previously forecast, and $1,100 in 2018, BNP said.

Last month, policy makers lifted the target range for the benchmark federal funds rate to 0.5 percent to 0.75 percent, and penciled in three quarter-point increases for 2017, according to the median of their quarterly estimates. While the BNP note didn’t spell out in figures the size of the hikes it expects, a graph showed six quarter-point increases through to the end of 2018.

Fed Chair Janet Yellen has backed a strategy for gradually raising rates, arguing in remarks a day before Trump’s inauguration last week the bank wasn’t behind the curve in containing inflation pressures but nevertheless can’t afford to allow the economy to run too hot. Yellen said wages had risen “only modestly” and manufacturing was operating well below capacity.

Accordingly, we’ve constantly been advocating adding longs in gold on both hedging as well as speculative grounds.

Earn profit on long Feb'17 CME gold mirroring the US political agenda, gold had a bit of a topsy-turvy so far, declining nearly 1% in the New York morning before recovering and settling close to 1% up on the day. 

We initially recommended going long the Feb'17 contract in mid-December as gold's sell-off to $1,130/oz following the December Fed hike made us take pause.

At that time, we concluded that gold’s near-term sell-off may be approaching an end given the severity in the post-hike moves in both the USD and S&P 500 and the magnitude of the sharp rise in yields. 

Since then, while the trade-weighted USD and the S&P 500 have largely stayed elevated, US yields have retreated off their mid-December highs and gold prices have simultaneously increased more than 5%.

Went long Feb’17 CME gold at a price of $1,130.50/oz on December 16, 2016.  Risk averse closed positions a fortnight ago at $1,196.60/oz for a gain of $66.10/oz or 5.8%, aggressive bulls can roll over.

Given the looming, largely uncertain, catalyst of the US inauguration and the launching of the first 100 days of Trump’s presidency, a few traders decided to lock in our gains and when settlement price of $1,196.60/oz for a gain of 6%.