FOMC-Fed-examination-magnifying-glass

Gold Price Higher on Fed Day

July 27th, 2016 by

The spot gold price was moderately higher on Wednesday morning, nearing $1,327 per ounce (up 0.5%) on the final day of the Federal Reserve Open Market Committee (FOMC) meeting. Similarly, silver prices were considerably firmer in early trading, adding almost 2% to about $20/oz.

Much of the attention today will center on the announcement by the FOMC this afternoon at 2 pm EST.

Fed Day Anticipation

As usual, investors will be closely watching for the FOMC announcement in the afternoon for clues to the Fed’s plans for its interest-rate policy going forward. While no rate hike is anticipated this month due to a range of macroeconomic factors, the explanation from the committee for its decision is always an important market mover. The U.S. bond market has already seen gains ahead of the conclusion of the two-day meeting as the year-long flight for safety continues. $34 billion in five-year Treasury notes were auctioned on Tuesday.

FOMC-Fed-examination-magnifying-glassFed Chair Janet Yellen will not be giving a press conference following the announcement and is unlikely to speak publicly about Fed policy until the annual central bank conference hosted by the Kansas City Fed that will be held in Jackson Hole, Wyoming in late August. The absence of such a Q&A session about whatever the FOMC decides today means that every word of the committee’s statement is sure to be parsed and scrutinized for any telling signs this afternoon—and for weeks to come.

Outside Markets

One reason being cited for higher precious metals prices this morning is the release of disappointing durable goods orders for June. The data show that these orders dropped by a whopping 4% during the month, far worse than the 1.1% to 1.4% decline analysts had expected. This represents the steepest drop in durable goods orders in two years. This is usually a sign that companies are not making long-term investments in heavy machinery and manufacturing capacity.

Oil prices were also weaker this morning, falling further from three-month lows. It was the fifth consecutive losing session for crude prices as U.S. inventories continue to rise. Seasonally, the crude oil supply is at historically high levels. The delivery point for WTI crude, known as Cushing, showed that stockpiles rose 1.4 million barrels last week.

The other precious metals were also up on Wednesday, with platinum prices gaining over 2% to $1,115/oz and the spot palladium price adding nearly 1.5% to $700/oz.

japanInternationally, stock markets were almost uniformly in positive territory as Japan’s Prime Minister Shinzo Abe announced plans for ¥28 trillion ($265 billion) in new financial stimulus from the Bank of Japan (BOJ). This move by Abe and BOJ Governor Kuroda was not particularly surprising: the country’s stock markets have been on the rise in anticipation and the yen eased nearly 5% against the dollar over the last two weeks.

After winning reelection earlier this month, Abe was essentially given a fresh mandate to pursue additional accommodative measures to boost the beleaguered Japanese economy, the world’s third-largest. Not only did Abe meet with former Federal Reserve Chairman Ben Bernanke (the biggest advocate of “helicopter money”) earlier in July, but the announcement comes just prior to the end of the BOJ policy meeting at the end of this week.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.