In 2017, gold rallied despite the hawkish Fed and the bearish macroeconomic fundamentals. What does it mean for the relationship between the U.S. monetary policy and the gold market?

After the Great Recession, central banks became the only game in town. Hence, for a couple of years, they have been the main determinant of asset prices. In particular, actual and anticipated Fed’s actions have been a key driver for gold prices. And investors have reacted to data releases mostly through their implications for the Fed’s policy. 2016 was the best example of the Fed’s strong influence on the precious metals market. Every time the U.S. central bank chickened out with hiking interest rates and sent a dovish message, gold went north. On the contrary, each hawkish message pushed the yellow metal down.

Now, it seems that the Fed’s influence on the gold market is waning. On Monday we wrote about the recent hawkish comments from the FOMC members. Normally, such statements would be bearish for the shiny metal. However, gold shrugged them off. It implies that investors are now more focused on Trump’s actions. Some analysts even suggest that gold has been pricing in Trump’s impeachment. We will analyze this issue later in more detail – today, we just would like to draw the investors’ attention to the fact that the Fed’s influence on the gold market has diminished recently, as the central banks are not the only game in town any longer. Since the November election, the (anticipated) fiscal policy has regained its position and the investors are now closely following comments from the White House. And since people are worried about the policy of the new administration, gold shines.

To sum up, the Fed has probably lost some of its influence on asset prices. In a sense, it’s a good development, since it was not a healthy and sustainable situation. However, it makes the analysis of the gold market a bit more challenging, as there are more factors influencing the price of the yellow metal. It seems that investors now focus on Trump’s actions, which generate a great deal of uncertainty, supporting gold prices.