Gold Moves Higher as the FOMC Stands Pat
Commentary for Wednesday September 21, 2016 (www.golddealer.com) Gold closed up $13.20 on the Comex today at $1326.90 but keep in mind this was before the Federal Open Market Committee released their latest decision on interest rates. They decided, once again not to raise interest rates and the gold after-market moved higher by another $5.00 – so tomorrow’s pricing should at least be firm. The Bank of Japan decided not to push further into negative territory.
The FOMC decision was anticipated by traders and so the upward bias on prices for most of the trading day but the Federal Reserve left the door open (once again) as its assessment of the recovery was bullish. So while the price of gold is higher it will still have to contend with this hawkish FOMC sentiment which suggests a rate increase is a done deal by December.
This from Jeff Cox (CNBC) – FOMC leaves rates unchanged in September meeting – Federal Reserve officials lowered their expectations for rate hikes in the years ahead Wednesday but teed up a likely move before the end of 2016.
In a statement from the Federal Open Market Committee after this week’s meeting, the central bank expressed confidence in economic growth, but not enough to make a move this month.
“The committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives,” the statement said.
The tipoff for what could be a December move came at what appeared to be a remarkably divisive FOMC meeting, judging by the statement and an accompanying summary of economic projections.
Three members from the hawkish Fed bloc – Esther George, Loretta Mester and Eric Rosengren – dissented from the statement, an unusual split considering Chair Janet Yellen’s adeptness at keeping the committee united. It was the most “no” votes since the December 2014 meeting.
Indeed, the so-called dot plot that shows individual members’ expectations indicated notably wider dispersion than the June meeting. While most Fed officials foresee a gradual increase of rates, one member expected the rate to be little changed from the 0.65 percent level all the way through 2019. Another member, meanwhile, put the rate expectation at 3.75 percent by 2019, more than a percentage point above the consensus.
Three members also indicated they do not want any hikes this year. The increase likely would come at the December meeting, considering the November session comes just ahead of the presidential election and there is no post-meeting news conference scheduled.
The committee also reduced its expectations both for economic growth and inflation this year, though the statement said “the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year.”
“Although the unemployment rate is little changed in recent months, job gains have been solid, on average,” the committee added. “Household spending has been growing strongly but business fixed income has remained soft.”
The committee noted that inflation still has not risen to the Fed’s 2 percent target. The statement reflected a continued Fed belief that the target would be hit “as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.”
Fed officials had been concerned about global developments, particularly the Brexit vote and a slowdown in China. However, the statement made only passing mention of international developments.
Importantly, the balance-of-risks assessment that Fed watchers monitor closely made a return appearance in the statement, with central bankers judging those risks to be “roughly balanced.”
Overall, though, projections reflected a substantial pivot for a Fed that had anticipated a full percentage point hike in its interest rate target this year. Instead, officials now foresee a move to a 0.65 percent level this year, or a quarter point from the current 0.4 percent funds level (the official policy is to target the rate between 0.25 percent and 0.5 percent).
The Fed last hiked in December 2015, its only move higher in more than 10 years.
In the years ahead, the committee sees two hikes in 2017 and three each in 2018 and 2019 that would bring the funds rate to about 2.625 percent, assuming that each increase would come in quarter-point increments. Coincidentally, the Fed projections now have retreated almost exactly to market expectations in the CNBC Fed Survey.
As for growth, the committee now foresees full-year gross domestic product of just 1.8 percent, a decrease from the 2 percent estimate in June. The unemployment rate now is projected to be 4.8 percent, as compared to 4.7 percent in June, and headline inflation, which includes food and energy prices, is estimated at 1.3 percent, down from 1.4 percent in the last summary of economic projections that the Fed releases each quarter.
Silver closed up $0.49 at $19.77. Can’t say the Fed decision has created much action in silver bullion – one way or the other. This market was very hot a few weeks ago as our sales of US Eagle Monster Boxes surged – but has recently cooled. My bet is that the public expects a better price and is willing to wait but keep in mind we are still trading at a substantial discount to recent old highs. Last week Silver Exchange Traded Funds gained more than a million ounces.
Platinum closed up $17.00 at $1047.90 and palladium closed up $0.40 at $683.90.
This is our usual ETF information – Gold Exchange Traded Funds: Total as of (9-14-16) was 67,620,926. That number this week (9-21-16) was 67,643,063 ounces so over the last week we gained 22,137 ounces of gold.
The all-time record high for all gold ETF’s was 85,112,855 ounces in 2013. The record high for Gold ETF’s in 2016 was 68,128,923 and the record low for 2016 was 47,568,082.
All Silver Exchange Traded Funds: Total as of (9-14-16) was 667,164,266. That number this week (9-21-16) was 668,330,030 ounces so over the last week we gained 1,165,764 ounces of silver.
All Platinum Exchange Traded Funds: Total as of (9-14-16) was 2,220,798. That number this week (9-21-16) was 2,222,201 ounces so over the last week we gained 1,403 ounces of platinum.
All Palladium Exchange Traded Funds: Total as of (9-14-16) was 2,085,822. That number this week (9-21-16) was 2,064,392 ounces so over the last week we dropped -21,430 ounces of palladium.
A lot has been made of the decreasing gold demand from both China and India. Actually this is to be expected – both of these countries are price sensitive and when prices are cheap in their minds the demand will come roaring back as it usually does. The Asian demand across our counter has evaporated since gold moved above $1300.00 but price sensitivity cuts both ways. If gold dips below $1300.00 the Chinese and Asian trade will reappear and we are now trading at the higher end of the price curve. Also keep in mind that both countries have generally increased their total imports this past decade as India’s effort to discourage gold ownership fails and the growing economic base in China creates more profit which will find its way back into gold bullion either legally or through smuggling.
This from Rajendra Jadhav (Reuters) – Asia gold demand to fall 15-20 pct in 2016 on price rise-Scotiabank – Gold consumption in China and India, the world’s top two buyers, is set to drop 15 to 20 percent in 2016 after lower investment demand and jewellery sales, an official at a leading importing bank said.
Lower demand from the two countries, which account for more than half of the global market, could limit a rally in global prices which are trading near a two-year high.
“Indian demand would be 15 to 20 percent lower in 2016 than the previous year. Higher prices, weak investment demand contributed in reducing consumption,” Sunil Kashyap, managing director, Global Banking and Markets at Scotiabank, told Reuters on Wednesday.
“India is not unusual. This is a general trend across Asia, even in China.” Gold prices have jumped nearly 28 percent so far in 2016 to $1,352 per ounce, deterring traditional jewellery buyers. “Unless the price comes below $1,300 per ounce we do not expect demand to pick up,” Kashyap said.
The walk-in cash trade was active and so were the phones – always happens on a rise in prices.
The GoldDealer.com Unscientific Activity Scale is a “4” for Wednesday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Thursday – 3) (last Friday – 4) (Monday – 4) (Tuesday – 3).
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