USAGOLD/Peter Grant/07-17-17
Gold pushed higher in overseas trading on Monday, adding to the solid gains recorded on Friday. The yellow metal is being buoyed by a weak dollar, which edged to another 10-month low earlier in the session.
The dollar has come under pressure as U.S. yields dropped, amid waning expectations for a September rate hike by the Fed. The FOMC will meet next week, and while they are not expected to adjust policy at this meeting, markets will be closely watching the statement for any indication of a possible pause for September.
I suspect the statement will be purposefully vague, but that subsequent FedSpeak will try to rebuild some measure of confidence that September is on the table. Right now, the probability of a September hike is just 8.2%.
That may be no easy task, with the financial press finally starting to question the Fed’s assertion that weak price data are “transitory.” The Fed is once again walking a very fine line with regard to their credibility.
US inflation decline is too persistent to ignore https://t.co/XvGwFSIfcV — Financial Times (@FinancialTimes) July 16, 2017
US inflation decline is too persistent to ignore https://t.co/XvGwFSIfcV
— Financial Times (@FinancialTimes) July 16, 2017
Perhaps the better strategy is to concede September and focus on December as the next best chance for one final rate hike before year-end. Based on Fed funds futures, a rate hike in December is about a 50/50 proposition.
However, if both price and growth data remain soft into year-end, even that may be a battle not worth fighting. If there are indications that the tightening cycle is over, further retracement in yields and the dollar would be likely. That would bode well for further gains in gold.
