24-Oct (USAGOLD) — Gold begins the week in familiar territory; well within the narrow range that has dominated for the past two-weeks. I apparently picked a good time to go on vacation . . .
The bid seen in early New York trading fizzled and the yellow metal is now down a couple dollars on the day. As noted in this morning’s Snapshot, gold is actually displaying some resilience in the face of a recent dollar strength.
The greenback is being buoyed by heightened expectations that the Fed will raise rates in December. The dollar index is trading at levels last seen in February. At that time, gold was trading around 1240.00.
Fed Funds futures put the probability of a December hike at 63%. While it’s been a while since the expectations have been this high, we most certainly have been here before.
Odds of 2016 Fed rate rise climb to near 5-month high https://t.co/apJlHaIWDx — fastFT (@fastFT) October 24, 2016
Odds of 2016 Fed rate rise climb to near 5-month high https://t.co/apJlHaIWDx
— fastFT (@fastFT) October 24, 2016
Even if you subscribed to the notion that the Fed is going to hike into weakness again in December, it would likely be another case of one-and-done for a while. St. Louis Fed President James Bullard suggested as much today, saying that while a 25 bps hike is likely (while refraining from any mention of timing), he expects the low rate environment to persist for several more years.
MarketWatch categorizes Bullard as an “outlier,” because of his forecast that has rates at 0.68% through 2019. Taking the rest of the “dots” into consideration, the median forecast suggest “rates will rise gradually to 2.6% over that same period.”
We all know how terrible Fed forecasting has been for years, always tending to be way overly optimistic. Like I said, we’ve been here before: Either the data will remain anemic and the Fed will hold, or they’ll hike another 25 bps and the subsequent data will suffer just as it did after the last hike.
Either way, I think it will be good for gold. The yellow metal retreated into last December’s rate hike on the expectations and then commenced to rally once it happened. This time — at least thus far — the yellow metal is hanging on to most of the gains it has already notched this year.
