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Trump, Quarles and Gold

The Bank of Japan kept policy unchanged yesterday, so markets were little moved. Investors await now the ECB meeting â?? the euro appreciated against the U.S. dollar amid the monetary policy sta...

Last week, Trump nominated Quarles to the Federal Reserve board. What does it mean for the gold market?

The Bank of Japan kept policy unchanged yesterday, so markets were little moved. Investors await now the ECB meeting – the euro appreciated against the U.S. dollar amid the monetary policy statement. If Draghi is less hawkish than expected, the greenback will probably rebound, which could hurt gold. We will analyze the ECB’s decision in the upcoming days – today we would like to cover Trump’s recent nomination.

The U.S. president has chosen Randal Quarles for the Federal Reserve’s vice chair for supervision post. He previously worked in the Treasury during George W. Bush’s administration and as a partner in the private equity company Carlyle Group. Quarles currently runs a private investment firm Cynosure Group. The selected candidate, if approved by the Senate, would fill one of the three vacancies in the Board of Governors. He would also replace Daniel Tarullo – the former Federal Reserve governor, who resigned in April – as Federal Reserve’s top banking regulator.

What does it mean for the precious metals market? First of all, Quarles is Wall Street-friendly, so he would look to ease financial regulations. Indeed, Quarles is against “arbitrarily taking an ax to big banks and irreparably damaging the economy”. Hence, Trump’s administration may use Quarles to carry out his deregulation agenda. This is not good news for the gold market, as financial deregulation may accelerate economic growth, or at least support financial institutions. The appeal of the yellow metal will be diminished during a boom in financial stocks.

Second, Quarles might strengthen the hawkish camp at the Fed. He expressed reservations about the Fed’s ultra loose monetary policy after the financial crisis and supported the idea of a rule-based approach to the monetary policy: “If you’re going to be transparent in an activity like the Fed, you have to be much more rule-based in what you’re doing”, he told Bloomberg in 2015. A more hawkish and predictable Fed is not good for the yellow metal, which likes low interest rates and uncertainty.

To sum up, Trump selected Quarles to fill the gap in the Fed Board of Governors as overseer of the nation’s banking system. Given the nominee’s pro-business and hawkish stance, this is fundamentally bad news for the gold market. However, the price of the yellow metal will be more affected in the short run by today’s ECB meeting, the expectations of the Fed tightening and U.S. fiscal policy. 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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