Fed Fails to Halt Gold

At the time of writing, gold is up over $30 an ounce in the last day. Typically, it can be very risky to trade in the days leading up to the Fed’s FOMC as the gold price can move dramatically both up and down, or remain still from fearful investors. In this case we simply saw a relentless rise beginning this week and continuing after the minutes were released.

Here are some highlights from the Federal Open Market Committee's meeting:

• Economic activity has been expanding, but tighter credit conditions will likely weigh on it, as well as on inflation and hiring.
• Again, that the US banking system is 'sound and resilient'.
• Inflation has remained elevated, and although it has reduced somewhat, it is unacceptably high.
• Some participants noted that there should be a shift from looking at one more hike, to simply holding the current rates for a longer duration.
• All participants were completely unsure of the future.
• Business and consumer spending were better than expected.

It is very interesting that they decided to comment on consumer spending being 'better than expected'. One must ask how they set their expectations. As covered just last week, analysis done by Citi showed that in terms of credit card spending September was the weakest month of the year. It was also the fifth month in-a-row spending dropped. This looks like an attempt by the Fed participants to justify the holding of rates at a high level. If spending is healthy, then that must mean consumers have money and will be able to weather higher interest rates. However, if they discussed Citi's report or a range of similar reports into consumer spending, they could be seen as trying to purposely crash the financial markets.

Other Factors

Stay tuned tonight at 11:30PM Melbourne/Sydney time for US CPI data. It looks as though the bond market has already priced in that the Fed will hold current rates for the foreseeable future. An ‘as expected’ result in CPI data could allow gold to keep moving on its current path. Last night’s moves were in part fuelled by a higher than expected PPI (inflation at the factory door) which came in at 2.7% ex. Food/Energy YY vs. Exp. 2.3% (Prev. 2.2%) and 2.2% Final Demand YY (Sep) vs. Exp. 1.6% (Prev. 1.6%, Rev. 2.0%).  They are big misses just ahead of the CPI print.

Gold has also benefitted from the Israel-Hamas conflict. Although the conflict has been going for decades, it has dramatically escalated and is undeniably affecting gold’s price. The largest risk remains if the conflict begins bleeding into other regions, such as Iran. That would mean global allies would be stretched in protecting their interests in Ukraine, the Pacific, and the Middle East. We see multiple headlines claiming that there is no hard evidence that Iran was involved, but repeatedly asking the question itself could be indicative of hoping that there is a connection.