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USAGOLD/Peter Grant/06-20-17
Gold edged to a new 7-week low, but the tone today is broadly consolidative. The yellow metal is underpinned, despite continued gains in the dollar.
The dollar index pushed to a 6-week high, as recent FedSpeak has struck a hawkish tone that is consistent with last week’s more hawkish than expected Fed policy statement. They are clearly trying to boost rate hike expectations for September; if for no other reason, to keep that option on the table.
Right now, the market is not buying it. Fed funds futures put the probability of a September rate hike at just 12.8%. The yield on the the 10-year note is 2.15%, down 30 bps from the beginning of the year amid mounting concerns about waning inflation pressures.
“I will say that the most recent inflation data made me a little nervous,” Chicago Fed President Charles Evans conceded today. However, most recent FedSpeak has been rather dismissive about inflation, even as oil prices continue to tumble.
Today’s drop in WTI below $43 clears the way for a challenge of $40. Given that energy prices are such a major input into the broader economy, the Fed should be more than a little nervous.
Evaporating inflation pressures may be providing some of the recent weight on gold, as the post-election reflation trade continues to get unwound. One should however keep in mind that gold is also a very effective hedge in times of disinflation, deflation and stagflation as well. Please see our special report on this topic by clicking HERE.
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