The Daily Market Report: Gold Buoyed by More Dovish Fed, Softer Dollar, Greece Worries
23-Mar (USAGOLD) — Gold pushed higher to start the week, setting new 2-week highs. A softer dollar, more dovish Fed expectations and persistent concerns about Greece have all helped buoy the yellow metal.
The fact that the most recent round of losses in the gold market stalled well shy of the 1131.15 low from November, further reinforced that important support level. We’ll see if this renewed buying interest can get gold back above the $1200 level this week.
The rebound in gold commenced after the Fed announced policy last week. While the word “patience” was removed from the statement in line with expectations, the central bank is suddenly more pessimistic about growth and inflation prospects. My long-standing skepticism that the Fed will hike rates this year is well documented, but suddenly the skeptics are coming out of the woodwork according to FTAlphaville:
The vogue for doubting Fed rhetoric started in earnest on March 11 . . .
However, the unwinding of long dollar positions really began in earnest at the end of the latest FOMC meeting. Even the Fed “dots” shifted dramatically, suggesting the members think rates will climb at a much slower pace than previously expected.
Late last week, Chicago Fed president Charles Evans said that the central bank should wait quite a bit longer to move rates off the zero-bound due to the economic uncertainty. “In the current context this result implies that a delayed liftoff is optimal,” said Mr. Evans. The Fed is better off waiting (indefinitely?) “in part because the credibility that supported the alternative tools’ prior efficacy could be substantially diminished by an unduly hasty exit from the zero lower bound.”
Aside from the February nonfarm payrolls beat early in the month, the economic data of late have been rather disappointing. Today, was no exception: The Chicago Fed National Activity Index fell to -0.11 in February, below expectations of 0.15, from a negative revised -0.10 in January (was 0.13). Existing home sales in February came in at 4.880M, below expectations of 4.915M.
The notion that the U.S. economy would continue at a moderate pace, outperforming both Europe and Japan, and leading to divergent monetary policy has been dealt a significant blow. The market’s adjustment to rate hike expectations has taken some of the wind out of the dollar’s sails and prompted a sharp short-covering rally in the euro.
However, upside potential in the single currency may be limited by pessimism that Greece is going to be able to work out a deal with its creditors. Greek PM Tsipras is meeting with German chancellor Merkel today. Both sides say they want Greece to stay in the EU, but neither seems willing to make the compromises necessary to mollify the other.
