Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact

Commodities / Gold & Silver 2020 Feb 24, 2020 - 01:33 PM GMT

By: Arkadiusz_Sieron

Commodities

Ladies and Gentleman, gold has overcome yet another barrier, jumping above $1,600 amid the fresh FOMC minutes and the renewed fears about the coronavirus economic consequences. What’s next for the yellow metal?

Fed More Optimistic about Global Economy
Gold bulls can be happy. As the chart below shows, the yellow metal has jumped above $1,600 amid the FOMC minutes and concerns about the coronavirus. Let’s now analyze these two important developments.


Chart 1: Gold prices in 2020.

The Federal Reserve released the minutes from its last meeting. They show that the US economy seemed stronger to the Fed in late January than they had expected. In particular, the FOMC members agreed that the labor market had remained strong over the intermeeting period, that economic activity had risen at a moderate pace, and that there were tentative signs of stabilization of the global economic growth. Hence, they were “generally cautiously optimistic about the effects on the business sector of the recent favorable trade developments and the signs of stabilization in global growth”.

Moreover, the participants also were more optimistic about the inflation returning to the target. They generally expected inflation to move closer to 2 percent in the coming months as the unusually low readings of early 2019 drop out of the 12-month calculation. More upbeat inflation expectations should make the US central bank less dovish or more hawkish, which should be supportive for the yellow metal, especially since that gold is perceived as an inflation hedge.

And even more importantly, the FOMC members saw the balance of risks in a more favorable light than in December, as the risk of a full-blown trade wars or a hard Brexit diminished.

Participants generally saw the distribution of risks to the outlook for economic activity as somewhat more favorable than at the previous meeting, al¬though a number of downside risks remained prominent. The easing of trade tensions resulting from the recent agreement with China and the passage of the USMCA as well as tentative signs of stabilization in global economic growth helped reduce downside risks and appeared to buoy business sentiment. The risk of a “hard” Brexit had appeared to recede further.

But what the Fed really enjoyed, was the reinversion of the yield curve and the following decrease of the likelihood of a recession:

In addition, statistical models designed to estimate the probability of recession using financial market data suggested that the likelihood of a recession occurring over the next year had fallen notably in recent months.

The fact that the yield curve has again inverted in January, must be a blow to Powell’s heart. It means that the three cuts of the federal funds rate in 2019 did not improve significantly the situation. The specter of recession is still present!

Of course, the Fed is fully aware of the fact that important risks to the global economy persist or that new dangers emerge:

Still, participants generally expected trade-related uncertainty to remain somewhat elevated, and they were mindful of the possibility that the tentative signs of stabilization in global growth could fade. Geopolitical risks, especially in connection with the Middle East, remained. The threat of the coronavirus, in addition to its human toll, had emerged as a new risk to the global growth outlook, which participants agreed warranted close watching.

Coronavirus Strikes Back

Indeed, the coronavirus seems to be the most dangerous threat to the global economy right now. After a temporary relaxation that followed signs of slowdown of new infections, investors started to worry again about the implications of the coronavirus outbreak. The second thoughts came on Monday, when Apple, the biggest American public company, warned that it would miss its revenue target for the first quarter as a result of the coronavirus. Investors learned that global supply chains have many of its links in China and with much of the country being in quarantine, many global businesses may suffer for a while.

But was the Apple’s warning really surprising? Not really. We have warned investors that China and the global economy may suffer in the Q1 or maybe even in Q2 (as there is some lag between development in China and the global economy) but that the economic growth should rebound later, when the epidemic is contained (and the data suggests that it indeed will be). And yes, the S&P500 has already rebounded, reaching for new heights.

Implications for Gold

What does it all mean for the gold market? Well, gold has jumped above $1,600 on Wednesday as concerns over the global economic impact of the coronavirus boosted the safe-haven demand for gold. But the real question is what’s next for the precious metals market.

Well, the safe-haven demad should remain in place for a while due to the concerns about the impact of the coronavirus. However, we are of the opinion that the coronavirus will alter neither the long-term growth of China nor of the rest of the world. So, when the fears recede, there might be a correction in the gold prices.

But there might be not. We mean here the fact that although the coronavirus won’t probably alter significantly the fundamentals of the global economy in the long-run, it could force the central banks to ease their monetary policy. The People’s Bank of China has already provided accommodation. And the Fed – especially if there is a more prolonged turmoil in the stock market and a fresh inversion of the yield curve – may follow suit. Then, gold may shine even without the global pandemic.

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

© 2005-2022 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