The last three days have been tough for gold and the precious metal continues to fall sharply this morning. News that more Republican senators are backing Trump's tax reforms are unleashing inflation and rate hike expectations, supporting the dollar. Earlier, Bloomberg reported that Trump is favoring John Taylor to be the next Fed Chair. Given that the Taylor Rule calls for higher interest rates, the dollar rose after the news report, causing gold prices to fall further. We covered our thoughts on John Taylor and the impact on gold in a recent thought piece. Despite the Fed Chair's limited impact on the Federal Reserve, hiring Taylor to lead the institution may lead to a more rules-based approach for setting interest rates. Interest rates today are primarily determined by the voting behavior of Federal Reserve Board. Applying the Taylor Rule more directly to monetary policy would be a game changer for the Federal Reserve, with interest rates likely to go higher.
Looking at technical indicators, gold is neither overbought nor oversold today and is trading within normal conditions. After its most recent top above $1,300, gold is now below $1,280.
After falling sharply in the third week of October, we are now bearish on gold in short-term. The precious metal fell on news reports that Trump favors John Taylor to be the next Fed Chair. We previously warned that the precious metal was looking oversold and due for a rebound. Gold has since re-entered normal trading conditions, based on various technical indicators on the daily chart.
After falling sharply in the third week of October, we are downgrading gold to neutral in the medium-term. The US dollar and bond yields are rising due to expectations of the next Fed Chair. The precious metal is now below overbought conditions, looking at technical conditions on a weekly chart.