Gold continues to grind lower on upcoming Fed meeting

EARLY REPORT

Gold continued to grind lower this morning with the upcoming Fed meeting on Wednesday the main influence on trading activity. Gold is trading at $1308 as this posted and down just over $7 on day. Silver is down 6¢ at $16.28. Market analysts are split on where the economy is headed and the dichotomy is evident in comments posted in the mainstream financial media almost on a daily basis.

This morning a CNBC article quotes Lynn Reaser, an economist at Loma Nazarene University as saying: “With inflation firming and the economy likely to regain speed, the Fed has no reason to fight the market. Look for a steady diet of a rate hike each quarter.” Richard Brusca of Fact and Opinion Economics has the opposite view. “I think tax cuts and fiscal stimulus will be the big disappointments of 2018-2019,” he says. “It will leave Fed policy as too aggressive.” At the moment gold appears to be reflecting Ms. Reaser argument, but by the end of the week, Mr. Brusca’s view might once again be in the ascendancy.

Chart of the Day

Chart note: This chart supports the notion that the Fed’s policy of raising rates could turn out to be too aggressive. As you can see the money supply is not displaying the kind of growth that normally lends itself to future inflation. That’s not to say that the trend could not suddenly change. For the moment though, if there is inflation in our collective futures it is not evident in the chart on money supply, which signals more of the same disinflationary tendencies we have experienced for years. That makes the Fed’s policy of raising rates a dangerous one for the economy and understandably raises a concern that the central bank might be lowering the thermostat in an already cold room. Interestingly, gold’s performance, recent weakness aside, has indicated a propensity to weather, if not benefit, from weak monetary growth and disinflationary economic environment. Notably, over the past roughly two years, gold has risen as money supply has declined.

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