Gold Reacts To A Perceived Hawkish Fed
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(Kitco News) - Gold sold off heavilyyesterday as Fed Chair Powell's testimony in front of Congress was seen as morehawkish than traders expected. Powell's statement that the Fed would continueto normalize rates throughout 2018 on the back of a robust U.S. economy andrising inflation expectations created a reversal in the dollar and a subsequentdrop in the metals. The dollar is expected to gain strength during this cycleas the EU and Japan continue to remain accommodative and yield spreads for thedollar widen against the euro and yen. We continue to believe the Fed isposturing and will remain very tentative in moving rates higher with the risksassociated to the equity and housing markets. Gold managed to stay above the$1,317 level at the close and remains tentatively constructive but the 1.22euro/dollar level should be watched. A breakdown here would suggestfurther short-term dollar strength and move gold to a possible $1,307 trade.
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