Sunshine Profits

About the Author Sunshine Profits

Sunshine Profits is built around the belief that we are in a secular bull market in all commodities and that precious metals will be among its greatest beneficiaries. Having established long term trends, our investment strategy focuses on evaluating low-risk entry points, as well as timing potential tops.

Direxion Shares Exchange Traded Fund Trust (JNUG): Yellen’s Testimony and Gold

Janet Yellen, the Federal Reserve Chair, testified yesterday before the Senate Committee on Banking, Housing, and Urban Affairs. What do her remarks mean for the gold market?

Yellen’s testimony was tactful, but with a slightly hawkish flavor. The Fed Chair signaled that March is a live option for an interest rate increase, as “waiting too long to remove accommodation would be unwise”. The most important paragraph of her statement was as follows:

“At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”

This is probably why the price of gold declined initially after the testimony. However, the yellow metal gained yesterday, on balance, which showed gold’s resilience. It seems that traders expected a more hawkish message with a very clear hint about a decision in March. Indeed, Yellen said “meetings”, not “meeting”, which may imply that the next rate hike will happen in May or June rather than March, especially that it could be too short from now to evaluate how the Trump administration’s policies may affect the economy and whether the interest rate hike will be granted.

To sum up, Yellen’s testimony was more hawkish than previous statements made by her. She did not say when the next rate hike would come, but reiterated that “every meeting is live” when she was pressed for a direct answer about the timing of an increase. Her statement supports the case for a more aggressive Fed this year, which could be negative for the gold market. However, gold shrugged off yesterday’s remarks, which indicates the bullion’s resilience, perhaps due to the lasting uncertainty about Trump’s policies. Today, Yellen will testify before the House Committee on Financial Services and we hope that she will get grilled more than yesterday.