What Does Super Thursday Mean For Gold Price?

The ‘Super Thursday’ is behind us. What does it imply for the gold market?

An eventful ‘Super Thursday’ is over. Contrary to some exaggerated expectations, there was no panic selloff, as the public testimony of Jim Comey was far less worrisome than it could have been. Draghi left interest rates unchanged, while the British elections resulted in a hung parliament. Let’s analyze these events and their consequences for the gold market.

ECB Keeps Rates Unchanged But Drops Easing Bias

As we wrote on Friday, Draghi did not lift interest rates and made no changes to the asset-purchase program. However, the ECB removed a statement referencing further rate cuts if needed, as the economy started to improve and the risk of deflation dissipated. On the other hand, Draghi pointed out that the measures of underlying inflation continued to remain subdued and he cut the outlook for headline HICP inflation, but he also noted that “nothing substantial has happened to inflation other than the oil price and the price of food.” Therefore, the recent ECB meeting was relatively hawkish, as it removed the easing bias and laid the foundations for future policy normalization. The expectations of a less dovish ECB could strengthen the euro against the U.S. dollar – it would be positive for gold, which is negatively correlated with the greenback.

Comey’s Testimony Will Not Sink Trump

The former director of the FBI, James Comey, gave the long-awaited testimony. The hearing produced some new revelations, but the POTUS should survive Comey’s remarks. First of all, it turns out that there was no obstruction of justice (Comey did not confirm it). Moreover, Comey said that the president had never been under investigation in the Russia probe, there had been no hacking or other interference with the voting, and there was no evidence of any ‘collusion’ between Trump and the Russians. Hence, the worries about Trump’s position should fade. If greed replaces the fear, the Trump trade may revive, which could be negative for the gold market.

Conservative Party Wins, But Loses Its Majority

The results of the British snap general election were disappointing for the Tories. Initially, opinion polls showed even a 20-point lead over the Labour Party, but it narrowed significantly by the time of the vote. With an electoral swing, the Labour Party got 262 seats, while the Conservative Party won only 317 seats. Although it remained the largest party in the U.K., it fell short of the majority in the 650-member House of Commons. The hung parliament could weaken May’s mandate for the upcoming Brexit negotiations. It should thus increase the political uncertainty, which may support the price of gold. However, a weakened position of the Prime Minister and her leverage implies also higher odds of a softer Brexit – such a scenario would be less favorable for the yellow metal. Moreover, the Scottish National Party lost 21 of their 56 seats, so the prospect of the second referendum on independence has been called into question after the election. The lower odds of the breakup of the U.K. may take away some safe-haven bids.

Conclusions

‘Super Thursday’ was an eventful day, but it did not trigger major movements in the markets. However, as the chart below shows, the price of gold fell on Friday.

Chart 1: Price of gold over the last three days.

The probable reason is that important risks are behind us and that Comey’s testimony was less harmful for the POTUS than expected. Therefore, investors may refresh their bets on the Trump trade, which could be negative for the yellow metal. Anyway, this week all eyes are on the Fed (and the BoJ), which is expected to raise interest rates, but with a dovish flavor. Stay tuned!

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

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