Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Powell Testimony Propels Gold Above $1,400 - the Countdown to July’s FOMC Is On

Commodities / Gold & Silver 2019 Jul 12, 2019 - 10:35 AM GMT

By: Arkadiusz_Sieron

Commodities

Hot Wednesday is behind us. We had both the Powell’s testimony to the Congress and the released minutes from the latest FOMC meeting. The biggest yesterday’s winner is clearly gold. If you would like to know why – and what situation the yellow metal is in currently – we invite you to read our today’s article!

Powell Fails to Push Back Against Market Expectations of Rate Cut in July

What a day! Gold is back above $1,400, as one can see in the chart below. What happened exactly?


Chart 1: Gold prices (London P.M. Fix, in $) in 2019.

First of all, Powell testified yesterday before the Committee on Financial Services, U.S. House of Representatives. What did he say? In his prepared remarks, Powell noted that the economy performed reasonably well over the first half of 2019, while the labor market remained healthy. The Fed’s basic outlook is still for economic growth to remain solid, labor markets to stay strong, and inflation to move back up over time to the Committee’s 2 percent objective.

But it were not these comments that sent gold above $1,400. Powell also stressed that

uncertainties about the outlook have increased in recent months. In particular, economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy. Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit. And there is a risk that weak inflation will be even more persistent than we currently anticipate.

Instead of focusing on hard data, Powell emphasized crosscurrents. Apparently, the recent trade truce between China and the U.S. did not impress him. He also downplayed a rebound in consumer spending during spring and a surge in nonfarm payrolls in June that eased worries after poor employment in May. Despite all the positive economic reports published recently, Powell basically said that nothing has improved since the June FOMC meeting:

Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted.

In Tuesday’s Gold News Monitor, we wrote that “because of the Wall Street's addiction to loose monetary policy, the FOMC could be forced to cut the federal funds rate at its next meeting.” Powell’s testimony confirmed our assessment. Although the recent U.S. economic data does not justify the move, Powell did nothing to change the market expectations and discourage traders from anticipating an interest-rate cut later this month. But he did encourage the gold bulls to enter the trading floor, that’s for sure!

FOMC Minutes Present Several Reasons for Interest Rate Cut

Wednesday was a big day. Apart from Powell’s testimony, later in the day the minutes of the latest FOMC meeting hit the tape. Just as Powell’s earlier comments, the minutes were dovish.

This is because participants generally agreed that “downside risks to the outlook for economic activity had risen materially since their May meeting” and that “the economy appeared to have lost some momentum”. Consequently, many Committee members indicated that “the case for somewhat more accommodative policy had strengthened”.

And now a long but key passage, which clearly shows that the Fed is prepared to cut interest rates this month:

Participants widely noted that the global developments that led to the heightened uncertainties about the economic outlook were quite recent. Many judged additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook. Several others noted that additional monetary policy accommodation could well be appropriate if incoming information showed further deterioration in the outlook. Participants stated a variety of reasons that would call for a lower path of the federal funds rate. Several participants noted that a near-term cut in the target range for the federal funds rate could help cushion the effects of possible future adverse shocks to the economy and, hence, was appropriate policy from a risk-management perspective. Some participants also noted that the continued shortfall in inflation risked a softening of inflation expectations that could slow the sustained return of inflation to the Committee's 2 percent objective. Several participants pointed out that they had revised down their estimates of the longer-run normal rate of unemployment and, as a result, saw a smaller upward contribution to inflation pressures from tight resource utilization than they had earlier. A few participants were concerned that inflation expectations had already moved below levels consistent with the Committee's symmetric 2 percent objective and that it was important to provide additional accommodation in the near term to bolster inflation expectations. A few participants judged that allowing inflation to run above 2 percent for some time could help strengthen the credibility of the Committee's commitment to its symmetric 2 percent inflation objective.

The whole litany of reasons! Everyone can pick up a justification to suit their taste! Let’s make the long story short. Rather than weaker U.S. data, the main motivations for the upcoming interest rate cut is subdued inflationary pressure and an insurance against downside risks.

Implications for Gold

Powell had probably the last chance to push back against the market expectations of an interest rate cut this month. Maybe he knew that it would be pointless, given the dovish minutes of the latest FOMC minutes. As the Fed Chair beat expectations on a dovish side, gold prices rose to their highest in over a week.

But what’s next for the yellow metal? Well, gold has been quite volatile recently, moving around $1,400. While it takes a lot more factors to consider and charts to interpret in order to make a gold price prediction, isolating the FOMC run-up periods shows a tendency for gold prices to rise heading into the FOMC – and that applies also to the meeting at the end of this month.

The more distant future is not all clear cut, yet gold finds itself in a more positive environment fundamentally, translating into fewer headwinds. The interest rate cut would work to ease upward pressure on the U.S. dollar, stimulating demand for gold. Moreover, the Fed’s move should add to the recession fears. If everything was rosy, the U.S. central bank would not reduce interest rates. Such worries should drive investors to safe havens such as gold.

If you enjoyed the above analysis, we invite you to check out our other services. We provide detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules