Gold retreated back below $1300 as Janet Yellen spoke on “Inflation, Uncertainty, and Monetary Policy” before the NABE in Cleveland. However, losses stalled well shy of Friday’s low at 1287.50, before prices began to recover.
Ms. Yellen reiterated that gradual tightening of monetary policy was appropriate, despite persistent weakness in inflation. However, she acknowledged that “My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.”
Yellen went on to say that there could be a course correction to “a policy path that is somewhat easier than that now anticipated.” Nonetheless, the market at least initially interpreted her comments as being hawkish.
The Fed has been trying to manufacture 2% inflation for five years now. Clearly there is something going on that can not be addressed by their standard policy options. Tighter policy is certainly not going to get them there.
The probability of a December rate hike jumped to 81%, pulling the dollar higher. That put additional pressure on gold, but it seems like this speech actually opens the door for a reversal in the policy course, more-so than anything we’ve heard recently. That would make this dip in gold a buying opportunity.