Gold Retreats Ahead of FOMC Minutes

May 18th, 2016 by

yellen_smileGold is seeing a very choppy morning in New York, as prices fall ahead of the release of the April FOMC meeting minutes. With no FOMC meeting in May, this will be the only “read” into the thinking of the Fed that markets get this month. Commodities in general are being held down by a stronger dollar, which hit a seven-week high overnight before easing into the US open.

June gold futures settled at $1,276.90 an ounce yesterday, for a gain of $2.70. Spot gold took advantage of late afternoon interest to close p $4.80, to $1,278.80.

This morning’s technical numbers have gold’s first support level at $1,268, followed by $1,259. First resistance is at $1,278, then $1,283.

Crude oil is another commodity having  a very volatile day ahead of the release of the FOMC minutes. Prices are oscillating above and below unchanged this morning. WTI settled up 1.2% yesterday for the highest close in 7 months.

 

Rate Hike Fears Redux

not sure if gustaWall St. opened in the red, but is trending into positive territory after a big sell-off yesterday. Consumer prices in the US recorded their largest one-month jump in three years, bringing the possibility of an interest rate hike by the Fed as early as next month sharply into focus. The increase in the consumer price index has traders actually listening to hawkish regional Fed presidents now, and taking the idea of a June or July rate hike seriously.

The bond market is also starting to price in at least the possibility of a rate hike this summer. The CME Group FedWatch tool, which uses Fed funds futures to estimate the market’s expectation of a rate hike shows a 19% chance of a June rate hike, up from the low single digits just a couple of weeks ago. The odds given to a December rate hike are up sharply, showing a 71% chance for a Christmas rate hike.

While consumer prices did jump, the last reading of the core PCE (Personal Consumption Expenditures) on April 29 showed a year-to-year increase of only 1.56%. This is the Fed’s favorite inflation measure, and has been below their 2% target for three years.

Stacks of new 100 US dollar banknotesSpeaking of the Fed and interest rates, Goldman Sachs this morning advised clients to get out of both stocks AND bonds. They suggest moving into cash to avoid the fallout from “rate shock.” This would be the reaction of stock and bond markets being caught flat-footed by the Fed raising rates.

Feeding into this uncertainty, Intermarket Strategy Ltd. Chief Executive and Strategist Ashraf Laidi warns clients to take the developing “death cross” in the S&P 500 seriously. He points out that this death cross has happened only two time before in the last 20 years, and preceded a huge drop in the stock market both times.

Investors may not want to take gold’s sensitivity today as an indicator of future performance. There are still many risks in the world. For instances, Saxo Bank sees Brexit + Trump equaling a target of $1,400 an ounce for gold this year.

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