The Daily Market Report: Gold Surges as the Age of Easing Seems Set to Endure

24-Sep (USAGOLD) — Gold has surged to a 4-week high on safe-haven interest. Mounting growth and price risks have fostered risk aversion and a flight to quality, which has pushed the yellow metal up more than $20 intraday.

In the conclusion of yesterday’s DMR, I said “Clearly, the age of inner-accomodative monetary policy is far from over.” That’s where we’ll begin today:

Today, the Central Bank of the Republic of China (Taiwan) unexpectedly cut it’s benchmark rate by 12.5 bps to 1.75%, amid slumping exports. Norway’s central bank also did a surprise rate cut of 25 bps, noting that “Growth prospects for the Norwegian economy have weakened, and inflation is projected to abate further out.”

“The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the coming year.” — Norges Bank Governor Øystein Olsen

Historically, weaker growth, soft exports and disinflationary pressures have prompted more accommodative monetary policy. The Reserve Bank of New Zealand cut rates a couple weeks ago and hinted at the possibility of further easing. The Reserve Bank of Australia is widely expected to cut by 50 bps when they meet the first week of October.

The PBoC has been devaluing the yuan and pumping liquidity through open market operations. The persistently weak European economy has led to recent hints that the ECB will look to expand their QE program. Ongoing weakness in the Japanese economy has heightened expectations that the BoJ will double down (again) on their QQE efforts.

I think it’s pretty evident which way the monetary policy tide is running at this point; and yet many continue to hold out hope that the Fed’s next move will be a rate hike. I think that window of opportunity closed some time ago. At this juncture, the biggest risk is probably a disinflationary recession that is going to require the Fed to ease.

With rates at the zero-bound, the question becomes, what might that easing entail? Negative rates, or QE4 are the obvious answers.

With key U.S. stocks indexes under pressure and at key inflection points, look for Janet Yellen to maintain a dovish tone when she speaks later today. In fact, in light of recent data and stock market action, she may be more overtly dovish than she was at her FOMC presser last week.

Gold is definitely benefitting from the easier policy biases. As Fed rate hike expectations diminish further, there may be a lot more long dollar / short gold speculative positions that need to be unwound.