USAGOLD/Peter Grant/07-05-17
Gold has regained some ground intraday, but remains generally defensive after getting hit hard in thin holiday trading earlier in the week. Focus is now on the FOMC minutes from the June meeting, which come out at 2:00ET.
Gold had proven to be quite resilient in the face of heightened hawkishness from global central bankers, and it was only heavy selling in the paper market during thin conditions that was able to push the yellow metal lower. It feels like policymakers are attempting to set the stage in advance of something. Something like more weak data, perhaps specifically on the inflation front.
The Fed has always maintained that their policy decisions are data dependent. However, they now seem to be ignoring weak growth and inflation data and trying to convince the market that they are still on track for additional rate hike this year. When the market wasn’t buying it, Janet Yellen went so far as to suggest that another financial crisis was unlikely in our lifetime. Additionally, the ECB and BoE jumped on the hawkish bandwagon, pushing global yields higher.
As for a September rate hike though, the market remains skeptical. Probability continues to hover below 20%. The market will pour over the minutes this afternoon in an effort to determine if the hawkishness is legit, or all bluster.
In a ProSyn piece last week, former Morgan Stanley chief economist Stephen Roach expressed a belief that we’re in for a “string of negative inflation surprises.”
With President Trump’s reflation agenda stalled, it seems there is little hope that the U.S. economy will shake loose from these “inherently deflationary” pressures. And as goes the U.S. economy, so go the economies of the rest of the developed nations.
In that light, is talk of higher rates and balance sheet normalization based on economic realities, or wishful thinking? In our July Newsletter, USAGOLD’s founder Michael J. Kosares reminds us that policymakers, politicians and investors have all been blinded to stark realities in the past.
One thing is for certain: If those policymakers now believe that wishful thinking is their best option — ignoring the realities of the data and hoping for the best — we’re all in big trouble. Individual investors who succumb to those platitudes do so at their own peril.
