The Daily Market Report: Gold Extends Gains on Dovish Fed, Greek Worries

18-Jun (USAGOLD) — Gold has rebounded back above the pivotal $1200 level, boosted by a more dovish tone from Fed chair Yellen yesterday. The dollar index has retreated to a 4-week low as September lift-off for rates is looking increasingly unlikely.

Said lift-off was originally expected this past March. March became June. June became September. And now September is becoming December. Will the Fed really play Scrooge and hike rates right before Christmas? I doubt it. Start thinking 2016.

Goldman Sachs’ chief economist Jan Hatzius says the Fed failed to “lay the groundwork” for a September rate hike yesterday:

We had viewed a clear signal for a September hike at the June meeting as close to a necessary condition for the FOMC to actually hike in September, but the committee did not lay that groundwork [on Wednesday]. Our new call moves our forecast for what the FOMC will do closer to our longstanding view of what the FOMC should do, in light of risk management considerations. — Jan Hatzius

Yellen said she would like to see more “decisive evidence” on inflation and employment before raising rates. Pretty vague right? She did make one thing very clear though; once that first rate hike happens, the trajectory of subsequent increases will be very slow. Cautious and dovish.

And lo-and-behold, today’s data where pretty decent. Nonetheless, I don’t see a rate hike this year and I remain skeptical that we will even see one next year.

Eurogroup finance ministers are meeting in Luxembourg today, and there seems to be little hope that a deal on Greece will be struck. German Chancellor Merkel took Greece to task today, basically saying that they had squandered “unprecedented help from its partners”. It would seem that patience has run out. Both sides have dug in their heels and odds of a default are surging.

This risk is certainly helping to underpin gold. Each tick of the clock gets us closer to the end of month, and the existing bailout deal. Europe seems to think they can withstand a Greek default, but nobody can be really sure about the magnitude of the fallout.