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Alabama Election, FOMC Meeting and Gold

Commodities / Gold and Silver 2017 Dec 14, 2017 - 12:49 PM GMT

By: Arkadiusz_Sieron

Commodities

Democrats won a fight for the U.S. Senate seat in Alabama. What does it mean for the gold market?

Yesterday, a special election for the United States Senate took place in Alabama. The vote was organized to fill the vacancy which arose when Jeff Sessions resigned from being a Senator to serve as U.S. Attorney General.


The results are surprising. A Democrat Doug Jones declared victory over Republican candidate Roy Moore. Jones won by about a 1.5 percent margin, or about 20,700 votes. If the results are certified, Jones will be the first Democrat to win a seat in the U.S. Senate in that state since 1992.

The results are positive for the gold market. They imply that the slim Republican majority will be even smaller. When Jones is sworn in (January 2018), the Republicans will only control 51 seats in the Senate. The reduced majority would make it harder for President Trump to introduce his economic reforms.

However, the Alabama outcome did not have a big impact on the U.S. dollar or the gold prices. Actually, the price of gold declined today, as one can see in the chart below. The likely reason is that the yellow metal remains under downward pressure from today’s FOMC meeting.

Chart 1: Gold prices over the last three days.


As a reminder, the Fed will release its newest monetary policy statement today. This will be followed by Yellen’s final press conference as the Fed Chair. An interest rate hike is widely expected. The Fed will also release the economic projections of the FOMC members. Now, the market expects 2-3 hikes in 2018, in line with the September projections. Hence, the market’s reaction will depend on the deviations from this outlook.

We believe that – due to the solid economic momentum, progress on tax cuts and tight labor market – there is more upside risk to the outlook for three interest rate increases next year. Thus, gold could struggle after the FOMC meeting.

On the other hand, the still subdued inflation may justify no substantial changes in the FOMC economic outlook. In 2015 and 2016, the price of gold rose after the December hikes, as these moves were accompanied by dovish rhetoric.

Will this time be different? It may be the case, as the macroeconomic outlook is distinct (not to mention personal changes in the Fed), but we will see. Stay tuned!

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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