The Daily Market Report: Gold Consolidates Ahead of FOMC Minutes
20-May (USAGOLD) — Gold extended modestly lower in overseas trading, but is now consolidating near unchanged on the day ahead of today’s release of the minutes from the April FOMC meeting. With the yellow metal still comfortably above the $1200 level, the short-term upside bias remains intact.
The market will be looking for hints as to whether FOMC members still believe that the recent economic weakness is “transitory,” or has become something more serious. Talk that a June rate hike was still on the table faded in the weeks following the April meeting. While focus may have shifted to ‘lift-off’ in September, there seems to be a growing conviction in the market that it may not happen this year at all.
When you consider that the world has accumulated an additional $57 trillion in debt since the financial crisis, we may have borrowed as much prosperity from the future as is possible. That may mean that moribund growth and deflationary pressures are likely to persist for some time to come.
Governments and policymakers are likely to react to this reality by following the same recipe as they have in the past: Borrow and spend. Print more money to paper-over that borrowing and spending.
The ECB has already warned this week that it is prepared to perpetuate their QE program beyond the current deadline of September 2016 if necessary. The euro sank and the dollar firmed in response.
The Fed however does not want a strong currency either. In fact the Q1 weakness in GDP has been largely blamed on the strength of the dollar and the resulting negative impact on exports. Participants in the ongoing currency war remain fully engaged. Will the Fed return fire with hints of renewed dovishness?
It’s too late to alter the content of the FOMC minutes, but I suspect they’ll prove to be pretty non-revealing anyway. I’d be watching the FedSpeak in the weeks ahead, particularly if the rebound in the dollar gains some traction. The last thing the Fed needs right now is a recession after committing trillions to invigorating growth.
The country being more than $18 trillion in debt is troubling enough, but Bloomberg reported today that states continue to struggle mightily 6-years after the recession (allegedly) ended.
Another recession, which is already cyclically past-due, could prove far more devastating than the last. With tools to support growth depleted and not replenished, about the only viable option would be for the Fed to reinstate QE.
