What next for the gold price?
The US Federal Reserve has once again nudged interest rates up, and shows every sign of going further and continuing with rate rises into next year.
Fed chief Jerome Powell referred repeatedly to the ongoing strength of the US economy, and argued that the stimulus generated by low interest rates is no longer required.
The USA has now well and truly moved on from the global financial crisis. The question is: what happens next?
It’s a pertinent question to ask, given the unprecedented political environment which now pertains in Washington as the culture wars enter a new and bitter phase with the conflict surrounding Judge Kavanagh, and Donald Trump continues in his campaign to “drain the swamp”.
One aspect of this swamp-draining exercise has been Mr Trump’s unusual propensity to criticise his own appointees, in particular Attorney General Jeff Sessions, but also to a lesser extent Mr Powell.
The President has made no secret of his view that the Fed’s stated policy of increasing rates is not to his liking. What seems particularly to irk him is the idea that as interest rise and the dollar strengthens, US exports become less competitive abroad.
How far Mr Trump’s rhetoric against his own appointees will run, remains to be seen. But this is a President that’s smashed several precedents already, and who won’t be shy about breaking a few more if it suits him.
And that possibility is one reason why gold isn’t weaker than it is.
True, the price has fallen steadily since April, when it was touching US$1,350. But there have been no dramatic falls, no falling off cliffs, and no bouts of really heavy selling.
Rather, the markets have priced in the Fed’s stated intentions to mark gold down, and then added a pinch of Trump uncertainty to take the edge of that markdown.
After all, Mr Trump’s pressure on the Fed to ease off on rates is only one part of a wider picture of senior US government figures working at cross-purposes. For proof, look no further than the famous Op-Ed in the New York Times, which detailed how senior administration figures are actively working to subvert the President’s decisions.
And that’s not all. The Mueller investigation into Mr Trump’s ties to Russia continues to rumble on, with several indictments already in the bag, and potentially more to come. To the outside observer, the more Mr Trump protests about a “witch hunt” the more he seems to give the allegations credibility.
In this atmosphere of uncertainty, overseas investors can be forgiven for taking out something of a hedge against the US dollar, especially if that hedge is significantly cheaper than it was six months ago.
It seems unlikely that President Trump will be impeached, but if he is, investors will want to be selling dollars and buying gold.
On the other, more likely scenario that Mr Trump isn’t impeached, the strength of the US economy is likely to continue to chase investors out of gold and back into the dollar. That will encourage Fed Chair Powell to continue with his policy of rate rises. But these have already been well flagged and to a large extent priced in.
The downward pressure on gold remains, but there are unlikely to be any dramatic falls. Instead, as long as a figure as divisive as Mr Trump is President, there’s always likely to be an element of uncertainty that will keep investors interested enough in gold to support the price.