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G30 Banking Seminar 2017 and Gold

After a week of meetings between the World Bank and the IMF, there was the G30 banking seminar. The group of speakers included Janet Yellen from the Fed, the ECB Vice President Vítor Constânc...

On Sunday, there was a meeting of international central bankers. What does it imply for the gold market?

After a week of meetings between the World Bank and the IMF, there was the G30 banking seminar. The group of speakers included Janet Yellen from the Fed, the ECB Vice President Vítor Constâncio and Bank of Japan Governor Haruhiko Kuroda. Yellen sounded hawkish, as her “best guess” was that consumer prices would soon accelerate after a period of surprisingly soft inflation. Even though at the last FOMC press conference Yellen admitted that subdued rate of inflation was “a mystery”, she stated during the meeting that “these soft readings will not persist” and that “the ongoing strength of the economy will warrant gradual increases”. Importantly, both the ECB and Bank of England officials echoed Yellen’s remarks. Only Kuroda was an outlier, as he remained a dove due to the lack of decisive inflationary pressures in Japan. He said: “achieving the two percent price stability target is still a long way off and the Bank of Japan will persistently pursue aggressive monetary easing.”

What does it all mean for the gold market? Well, on one hand, not necessarily good things. A dovish Bank of Japan and hawkish Fed imply a stronger U.S. dollar against the Japanese yen. This is bad news for gold prices. However, the Bank of Japan is an outlier. The ECB and other banks, such as the Bank of Canada or the Bank of England, either already started to tighten or are going to normalize their monetary policies soon. The narrowing divergence in monetary policies should be positive for gold prices, as the Fed will not be the only hawk in town anymore. But there is one caveat: the narrowing divergence results from a synchronized global economic expansion. The improved global economic outlook is not good news for the gold market. This is why investors should always look at the broader macroeconomic context.

To sum up, the leaders of the globally most important central banks in the world gathered together on Sunday at the G30 banking seminar. They sent a rather hawkish signal, as they argued that inflation should accelerate in the near future. Inflation is theoretically positive for gold, which is considered an inflation hedge, but if we see an uptick in inflation due to accelerated economic growth, the impact on the gold market may be not positive at all. We will analyze the inflationary outlook and the likely impact of the changes in inflation on the gold market in a more detailed way in the upcoming edition of the Market Overview. Stay tuned!

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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.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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