Gold prices are modestly lower this morning, with a stronger dollar countering bargain hunting. Markets reacted strongly yesterday to Fed Governor Lael Brainard’s unexpectedly dovish remarks, but seem to have shaken off any lingering effects. Those remarks sent stocks soaring and the dollar lower in Monday trading, but Wall St has reverted to a downward bias this morning. The Dow Jones Industrial Average is down more than 150 points in early trading.
The dovish remarks by Brainard yesterday came in a speech that was announced suddenly and on short notice, indicating that the Fed saw a need to get the markets to dial back rate hike expectations before the Fed blackout that begins a week ahead of FOMC meetings. As a member of the Federal Reserve Board of Governors, Brainard always votes in the FOMC.
Brainard’s speech led Goldman Sachs economists to adjust their odds of a September interest rate hike for the third time in two weeks. GS analysts now put the odds of a September rate hike by the Fed at 25%, down from 40%. The CME Group’s FedWatch tool, which uses fed funds futures rates to calculate market interest rate speculation, saw the odds of a September rate hike fall from 24% to 15%.
The lower chance of a rate hike is typically supportive of the stock markets. It’s also taken as a good sign for the gold market, however, because the longer that interest rates remain low, the longer the opportunity cost of holding gold remains negligible.
West Texas Intermediate crude futures are down more than 2.5% this morning, to trade right at $45 a barrel. Brent contracts are trading 2% lower than Monday’s settlement. Oil prices are being pushed lower by both a stronger dollar, and two reports that see the global oil glut lasting longer than expected.
Lower prices for oil and non-precious metals has caused the currencies of exporting countries to fall, which is supporting the dollar more than Fed expectations today. It is having the opposite effect on stocks. Energy companies feel the pressure of lower oil prices, while mining companies are being weighed down on.
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