Gold clings to 1-week high ahead of U.S. Fed minutes

Gold clings to 1-week high ahead of U.S. Fed minutes

It appears, for now at least, gold has reached a trough, and will gradually strengthen as the recent comments by President Trump attacking the Fed's policy of raising rates would only benefit gold.

The U.S. central bank has raised interest rates twice this year and is targeting two more hikes, with the next one seen in September. Treasury Secretary Steven Mnuchin recently told reporters that he had personally spoken to Trump about the central bank and that the president respects the independence of the Federal Reserve.

"I asked him specifically about the independence of the Fed, and he reinforced the fact that their goal is to [address] unemployment, our economy, and that is their only objective", Scott (R-S.C.) said in an interview. It followed reports earlier in the day that Trump had criticised Powell at a private GOP fundraiser.

In the meantime, the central bank is standing by its plan for higher rates as the economy strengthens, according to the minutes. This Wednesday, the Federal Reserve will release the details of its August meeting.

"The Fed was sounding relatively hawkish when it met last month and the outlook is likely to be for another rate rise later this year and that is largely within the gold price", said Mitsubishi analyst John Butler. While many USA presidents have chafed at the Fed's inclination to increase rates and curb inflation, few if any have been as outspoken as Trump in their criticisms of the US central bank.

The Fed has been in the process of raising its benchmark lending rate after keeping it at a record low near zero for seven years to help the economy recover from the Great Recession.

Rising interest rates lift the opportunity cost of holding non-yielding metal while boosting the dollar, in which it is priced.

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But the dollar's advance has slowed ahead of lower-level trade talks between Chinese and United States officials in Washington this week and has further weakened after Trump told Reuters on Monday he was "not thrilled" at the Fed's rate hikes. He urged the Fed to avoid doing anything that could slow economic growth. Economists said the pressure helped create the stagflationary economy of the 1970s.

"I think the Fed understands what its role is, and its role is to be an independent body".

Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo, said the euro "was already regrouping from its recent rout and Trump's comments gave extra incentive for short positions to be covered in the market". "So I would hope the president would refrain from making comments like that".

"Powell has set a course for the Fed, and he is going to stay on that course unless economic conditions change dramatically", said David Jones, the author of several books on the history of the Fed.

It therefore seems rather odd that he should now be criticising the current incumbent, and his choice as Fed chair for not keeping rates low, and pushing rates higher.

The worry is that the President's interventions will make it much harder to have that debate, without accusations that the Fed is being manipulated.

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