Gold is down today, slipping to a two-week low within the well defined range. The yellow metal is being weighed by building optimism that tax reform is going to get passed, which has pushed stocks to record highs.
However, the stock market seems to be largely ignoring the very small window to get the Senate and House tax bills reconciled ahead of year-end. There also is the impending threat of a government shutdown at the end of next week, as well as the growing threat of war between the U.S. and North Korea.
Efforts to kick the can on the budget and debt ceiling are already underway. A stop-gap spending bill in the House would keep the government funded through December 22. That would reportedly be followed by a second temporary measure to get the government to the end of January.
One thing is certain, regardless of the outcome on the tax plan, the debt ceiling is going to have to be raised or suspended and the inevitable march higher will continue. That raises the question, who is going to be the buyer of all that new debt? Especially when you consider that the Fed is trimming its balance sheet.
The PCE data that came out this morning was a bit of a mixed bag, but the important core inflation reading rose to 1.4% y/y; still well below the Fed’s target of 2.0%. The spin will be that the uptick portends higher inflation in the months ahead, but the truth is that the trend for the year remains unquestionably negative.
The market still sees a 90.2% probability of a December rate hike. That FOMC meeting is December 12-13.