08-Dec (USAGOLD) — Gold softened within the range as the euro reacted negatively to today’s ECB policy decision, pushing the dollar sharply higher. While the dollar index is up more than 1% today, the yellow metal is displaying some resiliency, down less than 0.4%.
The ECB held rates steady today, as was widely expected. They decided to extend QE through the end of 2017, but the market was confused by the decision to cut monthly purchases after March from €80 bln to €60 bln. The market screamed “taper!” Mario Draghi was clear that because there was no discussion of taking QE to zero, it was NOT a taper.
Watch again: Draghi on tapering (which isn't on the table) and its definition https://t.co/E82qCC1aHf — ECB (@ecb) December 8, 2016
Watch again: Draghi on tapering (which isn't on the table) and its definition https://t.co/E82qCC1aHf
— ECB (@ecb) December 8, 2016
The markets still seem a little confused, but I’m guessing the reduction is monthly purchases is likely a function of the diminished supply of qualified assets available to buy. I mean, once you throw in bonds that yield below the deposit rate — as they did today — what else is there? Well, there’s always stocks . . . and gold . . .
And what of our own central bank’s plans? A look at the market suggests that a rate hike next week is all-but a sure thing.
Former Fed insider and President of Money Strong, Danielle DiMartino Booth told Grant Williams of RealTV that “If [Janet Yellen] wants to be truly apolitical, she holds off in December. Because we’ve already seen tightening.” Wouldn’t that be a kick in the pants?!
The bond market has gotten shellacked since Donald Trump’s surprise election exactly a month ago. The magnitude of the tightening is likely far in excess of what the Fed might have expected from a 25 bps rate hike earlier in the year. So, do they go through with it next week anyway and push rates higher yet? Or do they hold pat and watch the great unwind of current positioning?
One thing seems certain, next week’s Fed policy decision may not be the lay-up that everyone was expecting. Given the uncertainty, gold might be a good place to be.
