Metals Cautiously Higher With Rate Hike Looming: Morning Market Update July 29

July 29th, 2015 by

Markets will be closely watching the tone and specific language of today’s monthly announcement from the FOMC for signs about the timing of the Fed committee’s first increase to the federal funds rate since before the financial crisis. The changes to the FOMC’s forward guidance promise to be subtle, with the minor adjustment of key phrases like “risks nearly balanced” to simply “risks balanced” signaling a good chance that monetary policy tightens at the committee’s September meeting, as most market analysts predict. While stocks will predictably be hesitant until after the announcement at 2 pm EST, the precious metals opened mixed but perhaps cautiously on an uptrend: silver and palladium added about 0.15% and 0.30%, respectively, while gold and platinum opened trading unchanged, with the yellow metal just below $1,096/oz.

Yesterday in the Markets

Stocks rallied, shrugging off the risk from China yesterday to rally in tandem with global equities. Though the precious metals were mostly flat, palladium and silver did advance modestly. Strong demand for U.S. Treasuries eased up, sending 10-year T-note yields back up to 2.26%. In Asia, the Nikkei 225 was flat and the Hang Seng index actually gained 0.6% despite another 1.7% loss for the Shanghai Composite. Shares were mostly in the green across Europe as Greece continued to near a formal agreement on its debt.

Factors Affecting Gold Today

While the outlook for virtually all financial assets is affected by the anticipated increase to the federal funds rate, the impact on gold is especially muddled. For months, a rate hike appeared to be positive for gold as the drying up of easy credit would drive investors out of stocks. Yet, a tighter monetary policy does usually mean a firmer dollar, which always had a downward drg on the gold price. Moreover, highe500px-US-FederalReserveBoard-Seal.svgr interest rates mean that the counterparty risk of holding shares of paper gold goes up. Hence, a movement by the FOMC is now actually bearish for gold in the medium-term, while a delaying of the first rate hike could hurt the Fed’s credibility further and help lift the metals. Though most signs in the economy point toward an imminent rate hike, particularly as unemployment nears Fed targets, low inflation remains a concern. Tomorrow’s GDP numbers will go a long way toward influencing market sentiment, and will likely weigh heavily on any decision to adjust rates.

In the backdrop of the Fed rate hike conversation, anti-gold sentiment continues to run rampant in the mainstream media. Analysts from Bloomberg wantonly dismiss gold as “out of style like bell bottom trousers”—a statement that reveals their myopic view toward the precious metals. Savvy investors (as distinct from speculators) aren’t holding gold because it’s trendy or it’s the “hot commodity” at the moment; on the contrary, gold is the ultimate anti-trend, the asset allocated in one’s portfolio specifically to counterbalance other uncorrelated investments. Anyone that over simplistically uses gold’s lack of yield and its falling price as some smoking gun to invalidate it as an asset clearly doesn’t understand how the metals function nor how their benefits manifest.

1933_saintIn coin industry news, the never-ending story of the U.S. government’s dispute with the Langbord family, who are in possession of a group of 10 Saint-Gaudens design 1933 gold double eagle coins that could be worth nearly $10 million each at auction, took another dramatic turn. After years tied up in the courts, the Langbords looked to be in the clear to establish legal ownership of their priceless relics—which the government claims the family patriarch essentially stole from the Mint many decades ago—before the previous court’s ruling was vacated. All gold coins minted in 1933 were supposed to be melted down pursuant to an executive order by FDR, so it has been argued that these double eagles represent government possessions, not legal tender, and have never been legitimate for the Langbords to own. The only 1933 double eagle ever sold was given an exception and monetized by the U.S. government in 2001, realizing over $7.5 million at auction.

looking-aheadLooking Ahead

Weekly jobless claims and especially Q2 GDP numbers for the U.S. will carry the day tomorrow.

by Everett Millman

Gainesville Coins Financial Charts and Portfolio Tracker