The Daily Market Report: Gold Consolidates Within Range Ahead of FOMC Meeting

27-Jul (USAGOLD) — Gold is trading modestly lower in the U.S. session, but price activity remains confined to last Monday’s range. The market is looking ahead to this week’s FOMC meeting, hoping to get some indication as to the likely timing of that first rate hike.

The Fed begins a two-day meeting tomorrow. The Fed has suggested that lift-off is likely to occur in September, but the market is leaning more toward December or early in 2016. The Wall Street Journal suggests that this presents the Fed with a “slight signaling challenge”:

This leaves the Fed with a slight signaling challenge at the meeting this week. How aggressively should officials tip their hands about the timing of a rate increase later this year? — WSJ

The Chinese stock market got hammered again today, registering it’s biggest percentage drop (-8.5%) since 2007. U.S. stocks are under pressure again as well, with the DJIA falling to a 5-month low. If shares remain under pressure, it will be difficult for the Fed to pull the trigger on a rate hike.

Mind you, the Fed’s mandates have nothing to do with stock market performance! They are only concerned with maximum employment and price stability. Even the Fed has expressed some concern about the data behind the headline jobs numbers, and inflation remains well below their stated objective.

I say that with some measure of sarcasm. Of course the Fed watches the stock market. Even Ben Bernanke made that quite apparent when he said several years ago: “I do think that our policies have contributed to a stronger stock market.”

The Fed certainly isn’t alone. The Chinese government has already massively intervened in the stock market (unsuccessfully thus far). They said today that they plan to buy even more shares in order to “stabilize market and investor sentiment…and prevent systemic risk.”

The BoJ has been aggressively buying stock ETFs for some time, propping up their market as part of the Abenomics plan. Since the ECB began their QE program, certainly a lot of of the new-found liquidity has found its way into the stock market. However, since the very beginning, there have been rumblings that the ECB program would eventually be expanded to include direct purchases of shares.

As the risks for a Chinese hard-landing rise, odds of a U.S. rate lift-off diminish. Or certainly the hope for a sustained tightening campaign. That will likely undermine the dollar and provide some support for gold.