Gold Price Softer Ahead of Fed

August 17th, 2016 by

The precious metals were slightly lower on Wednesday morning thanks to some light pressure from outside markets, sending gold prices down about 0.2% to $1,344/oz. How the market moves today will be largely determined by what—if anything—is revealed in this afternoon’s release of the Federal Reserve Open Market Committee (FOMC) meeting minutes from July. Silver prices were also modestly lower, remaining near $19.70/oz.

All Eyes on FOMC Minutes

yellen_janetAs is usually the case, the language of the most recent month’s meeting minutes from the FOMC will be parsed, examined, and analyzed with great scrutiny by the markets when they are made public at 2 pm EST this afternoon. It’s worth noting that the Fed officials who serve on the committee have followed almost the exact same script from last year’s playbook: periodically engage in hawkish talk about raising interest rates to keep markets on their toes while making no moves on actually following through with a rate hike. This has been a recurring theme since Janet Yellen (pictured, left) became Fed Chair in 2014.

As far as gold is concerned, the chance of a more hawkish outlook could drag prices lower in the near-term.

FOMC-Fed-examination-magnifying-glassOf course, the committee is always careful not to tip off markets about the exact timing of any policy moves. However, the degree to which the FOMC statement tilts toward confident (hawkish) rhetoric or more pessimism (dovish) will be taken as an indication about whether any rate hike before the end of the calendar year is more or less likely.

While the Fed continues to balance the risks of tightening monetary policy amid stagnant growth, the other end of the equation is that waiting too long to hike could result in a jump in inflation. Thus far, headline inflation numbers have been subdued despite continued job growth. The lingering and uncertain effects of Brexit, along with the presidential election, will also weigh on the FOMC’s decision-making.

World Currencies

After losing ground on Tuesday, the U.S. dollar rebounded from a recent three-month low. The greenback was about 0.1% higher on the DXY index this morning. This placed some modest downward pressure on the precious metals and commodities. Crude oil prices still hovered around a five-week high.

brazil-flagYet, in terms of Indian rupees, the gold price has actually hit a 33-month high. Volatile trading in the foreign exchange (forex) markets has prompted some additional safe haven demand for the yellow metal overseas. Similarly, the Japanese yen advanced about 0.4% against the dollar to 100¥ per USD.

Emerging market currencies slid, however, as traders are preferring to wait until after the FOMC minutes to gauge where the market is headed. As it hosts the Rio Olympic games, Brazil has seen its stock market and its currency rank among the best-performing assets in the world so far this year. Many observers find these gains dubious considering the country is struggling with a tanking economy, a political circus surrounding a pending presidential impeachment, as well as the health crisis of the Zika virus. The Brazilian real lost about 0.5% against the dollar, though it remains 24% in the green year-to-date.

 

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.