Gold has turned mildly corrective as the dollar staged a bounce from the new 13-mnth low set in earlier trading. While this morning’s better than expected U.S. data may have sparked some short covering in the greenback, the more dovish Fed bias suggests that these gains are corrective as well.
In the wake of this week’s FOMC meeting, Fed funds future now put the probability of a September rate hike at 0%. It would seem that markets need to further unwind previous hawkishness, which should keep the dollar under pressure and gold underpinned.
Tomorrow we’ll get our first look at Q2 GDP. Expectations are running at +2.5%. Following this morning’s much better than expected June durable goods orders, the Atlanta Fed’s GDPNow model is now projecting 2.8%. However, that is still way down from early forecasts that were north of 4%.
An miss on growth — certainly anything sub-2% — would likely take a December rate hike off the table. It would also raise considerable doubts about balance sheet normalization commencing this year. That would send the dollar reeling, pushing gold back above $1300 for the first time since last November.
Such a move could signal an early end to the summer doldrums. The quiet summer months has more often than not proven to be an excellent time to buy gold, ahead of the cyclical pressures that tend to drive the price higher in the fall.