The Daily Market Report: Gold Remains Corrective as Focus Shifts to Fed Meeting, Balance Sheet Unwind

USAGOLD/Peter Grant/09-18-17

Gold remains defensive as investors seem inclined to shrug-off the political and geopolitical worries and return favor to risk assets. Focus this week is on the FOMC meeting, which begins tomorrow, as well as the general debate at the UN.

The Fed is expected to hold steady on policy this month, amid persistent concerns over weak inflation. While the August inflation data were slightly warmer, the overall trend remains troubling.

“I’m not convinced the Fed is going to say the scare is over on the basis of one number,” said Tim Duy, a professor of economics at the University of Oregon. “It looks like there are persistent disinflationary trends in the data.” — FT

Despite the inflation concerns — and perhaps some mounting concerns about growth — the Fed is expected to announce they will begin normalizing their massive $4 trillion balance sheet. That process may begin as soon as October. That decision may be particularly interesting in light of what the dot-plots may say.

The Atlanta Fed’s GDPNow projection for Q3 growth was slashed to 2.2% last week, down significantly from 3.0% in the previous week. A number of banks and brokerage house have slashed their Q3 forecasts in the wake of recent soft data and in light of the economic effects of the recent hurricanes.

Continued weakness in the dollar against most currencies is still seen as a limiting factor on the downside for the yellow metal. While we’re hearing about dollar gains today, they are localized to the yen, as the risk-off trade from recent weeks gets unwound. The dollar index, which measures the greenback against a basket of currencies (including the yen), is looking decidedly less bullish.


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