Gold prices are trading just above unchanged in New York this morning, as gains overnight in Asia eased during the European session. Today marks the start of the two-day Open Market Committee meeting of the Federal Reserve, where monetary policy is set. The market continues to place the odds of a rate hike tomorrow at 15%, as measured by CME Group’s FedWatch indicator using fed funds futures rates. Even so, economists at Barclays and BNP Paribas are expecting a surprise rate hike.
Spot gold is trading in a very tight $5 range this morning, while spot silver is running in a wider, 30 cent range. The dollar is also flat in early trading, recovering from a blip downward in European trading. The yen is being helped by common consensus that the Japanese central bank will leave monetary policy pretty much where it stands. In fact, the Fed is more likely to affect the yen than the Bank of Japan, which is widely seen as having run out of options in its attempts to pull the economy out of its deflationary spiral.
Oil prices continue to be hammered as the facts of a global oil glut outweigh the rumors of an OPEC production cut. Both West Texas Intermediate (Nymex) oil futures and Brent futures are down over 1% this morning. This despite news that a new terrorist group in Nigeria has bombed an oil pipeline for the second time in a week. Countering any supply disruption from Nigeria is news out of Libya that output is increasing. A spokesman for the state-run oil company told reporters that Libyan crude oil production has risen by at least 50,000 barrels a day as two more oilfields come back on line.
Stocks opened higher in New York this morning in volatile trade, primarily on financial stocks. Rumors are circulating that this week the Fed will once again lower it’s inflation target before declaring the economy “recovered.”
Fed boss Janet Yellen is also navigating a political minefield. Republican Presidential nominee Donald Trump will renew his attacks on the Fed if no rate hike is announced tomorrow. Trump’s main hit on the Fed is that they are artificially supporting the economy so the Democrats will win in November. The backlash will be immediate and strong if Trump loses in November, and the Fed hikes rates in December. Trump supporters will point to that as political bias at the Fed.
Traders note that the last Fed official to speak before the blackout period ahead of the FOMC was governor Lael Brainard, who spoke on short notice to give a dovish speech. This could be a “tell” by the Fed that rates will remain steady until the end of the year.
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