The Daily Market Report: Gold Consolidates as Markets Await Cues from Fed

28-Jul (USAGOLD) — Gold is consolidative as the Fed begins their two-day meeting. The market continues to hope for greater clarity on the timing for the Fed’s first rate hike in nearly a decade.

I’m not sure they’re actually going to get that, given the continued unevenness of the recent economic data. I suspect the Fed will continue to play things close to the vest, implying they still think a rate hike may be appropriate this year, while maintaining all the caveats to give themselves a way out of such a move.

Think about that though: The last time the Fed raised rates was June 29, 2006. That’s 109 months ago. My eldest son was barely one-year-old at the time. I’m sure if you predicted at the time that the easing campaign that ultimately led to ZIRP, along with QE1, 2 and 3, would last until late-2015 (and possibly beyond), people would have thought you crazy.

Today we saw that housing price gains have stalled. Consumer confidence unexpectedly plunged in June. A Gallop survey showed that economic confidence has fallen to a 10-month low. The CRB (commodities) index is now down 11.5% so far this year, trading near 52-week lows; which is inactive of deflation.

While there have been some bright spots in the data as well, as whole this does not seem to be a particularly conducive time to start tightening monetary policy. If the Fed were to pull the trigger and growth suffered, they might conceivably have to about-face immediately and cut back to the zero-bound.

That won’t do much to inspire confidence in the Fed. In hindsight it appears that the Fed missed an entire tightening cycle, although to be fair, the economy never really met their objectives for tightening. It doesn’t meet those objectives now either, so the last thing they want to do now is kill-off any momentum the economy might have.

Recall that the economy contracted in Q1! The advance report for Q2 GDP comes out on Thursday, one day after the FOMC policy statement. Consensus is running around +2.7%, but some key forecasters have been negatively revising their outlooks in recent weeks. The rest of this week should be interesting.