USAGOLD/Peter Grant/08-16-17
Gold is consolidating within yesterday’s range, awaiting the FOMC minutes from July’s Fed confab. Earlier tests of the downside were limited and short-lived and the yellow metal is now trading modestly higher on the day.
It will be interesting to see if the level of concern about waning inflation pressures was elevated beyond that which was expressed in the July policy statement. I suspect that the minutes will do nothing to mitigate the expectation that the Fed is on hold through November. They may have tried to bolster the prospects for a December hike, but those chances will rise and fall based on incoming data; the last of which being July PPI and CPI, which were pretty disappointing.
The Martin Wold piece that I posted earlier today about the Bank of England is pertinent to Fed policy as well. Massive accommodations were made, both in terms of record low interest rates and massive balance sheet expansion, all with the goal of stoking inflation. Those measures failed miserably, but are certainly not going to be achieved with tighter policy.
It’s the ‘not knowing’ that is so troubling. Almost assuredly, the Fed will have to ease policy again at some point in the future. As we covered in yesterday’s DMR, economist Kenneth Roghoff believes we need to be preparing for negative rates.
We know that historically the Fed cuts rates by at least 300 bps in reaction to recessions. From the present level, such cuts would take the Fed funds rate to -1.50%! As unlikely as that seems, there was a time when I would have never expected any central bank to offer negative deposit rates. However, in recent years, plenty of precedence has been set.
The results have been dubious at best, but again the uncertainty perpetuated by such an unnatural state is the most troubling. As Wolf point out, nobody knows how this will all shake out, which is a really good reason to protect yourself with some gold.
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