12-Dec (USAGOLD) — Gold is rebounding from fresh 10-month lows overseas as the dollar failed to generate upside follow-through from the solid gains seen late last week. The yellow metal is presently trading more than $6 higher on the day and nearly $15 off the intraday low.
Focus is squarely on this week’s 2-day FOMC meeting, which begins tomorrow. The Fed is widely expected to hike rates by 25 bps, just as they did last December. However, any hints about policy moving forward are going to be of far greater interest.
As noted in commentary last week, monetary conditions have tightened considerably in Q4 as expectations of a rate hike rose and in the wake of the U.S. Presidential election. It seems that some re-emphasis of the slow and steady mantra might be warranted given the recent rise in rates and the dollar. However, the recent rebound in energy prices has the potential to un-anchor inflation expectations.
Non-OPEC oil producers agreed over the weekend to join the production cutback. There is talk that Saudi Arabia may further reduce output as well. Oil surged over $54 for the first time since July 2015.
Today’s 3-year auction did not fair so well. The yield is the highest since 2010 at 1.452% and the bid-cover ratio was 2.65, the lowest since 2009. That bodes ill for the $20 bln 10-year reopen that is also scheduled for today.
Rising yields make the servicing costs on our massive near-$20 trillion debt increasingly expensive. Not a terribly good situation to be in if the incoming Trump administration is going to cut taxes and borrow and spend on infrastructure.