Gold Price Reverses Partially as Markets Refocusing on Jackson Hole

GOLD PRICES slipped by $5 per ounce this Thursday lunchtime, as markets turn their attention to Jackson Hole.  Gold rose to $1291 yesterday amid concerns over President Donald Trump’s threats to shut down the U.S. government and withdraw from NAFTA.

Markets are focussed on the Economic Policy Symposium, which begins today at Jackson Hole, Wyoming.  Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi are scheduled to speak on Friday.

“I think people will most look forward to, but also be most disappointed by, the Draghi speech,” Bill Northey, chief investment officer at U.S. Bank Private Client Group said. “At most he will make some additions to what is already known, but it will be devoid of any real new policy information.”

However, “If any news does emerge from Jackson Hole, thin liquidity in the summer could amplify any market move, so the market will be on edge even with nothing expected,” said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo. 

On Tuesday President Donald Trump threatened a government shutdown if he doesn’t get funding for the proposed border wall with Mexico at a rally in Arizona.

“It’s clearly concerning if he wants to tie the wall to the government shutdown. That’s certainly an issue and that’s an issue for the dollar,” Chris Watling, CEO of Longview Economics, stated on Wednesday.

At the same rally President Trump also said he doubts the United States can reach a deal to renegotiate the North American Free Trade Agreement (NAFTA) which is a trade agreement with Mexico and Canada

Congress needs to pass a spending measure to keep the government open by 30th September, and faces a deadline to raise the nation’s debt limit by mid-October or  the United States will risk defaulting on its debt obligations.

“While political manoeuvring can lead to a shutdown, missing a debt payment is considerably more serious and one that in this game of brinkmanship largely within the Republican Party neither side seems to want to risk,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a note Wednesday. 

Fitch Ratings said on Wednesday, “If the debt limit is not raised in a timely manner prior to the so-called “x date” Fitch would review the US sovereign rating, with potentially negative implications. We have previously said that prioritising debt service payments over other obligations if the limit is not raised – if legally and technically feasible – may not be compatible with ‘AAA’ status. “

The Congressional Budget Office (CBO) estimates that the Treasury is likely to exhaust “extraordinary measures” (reaching the “x date”) in October.

During the debt ceiling showdown in August 2011, Standard & Poor’s stripped the United States of its highest rating. It has since then kept a slightly lower grade of AA+ on the world’s largest economy. Neither Fitch nor Moody’s cut its AAA rating.

Immediately after the S&P’s downgrade six years ago, the Treasuries market rallied, sending yields lower and helped push the gold price higher.

The dollar index, which tracks the U.S. currency against a basket of six other major currencies, gained 0.1 percent to 93.270 on Thursday lunch time, following the previous day’s 0.4 percent slide.

Most Asian indexes closed higher on Thursday despite US equities closing lower.  European markets were higher Thursday lunchtime, FTSE 100 Index gained 0.5 percent to the highest in more than a week and DAX Index increased 0.3 percent.

Germany’s central bank has completed its operation to bring back $27.9 billion worth of gold reserve from New York and Paris to Frankfurt, announced by the Bundesbank on Wednesday. The operation started in 2013 and was expected to be completed in 2020.

Data from the World Gold Council shows that Germany as of July 2017 holds 3,374.1 tonnes in their gold reserve.  It has the second biggest gold reserve after the United States.

As a result of the transfer, 50.6 percent of its reserves are now stored in Frankfurt. The remainder is split between the U.S. and Britain, with 36.6 percent at the Federal Reserve and 12.8 percent at the Bank of England.