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LAWRIE WILLIAMS: Gold steadyish as FOMC meets

With the November FOMC meeting starting today, eyes will be on the gold price which could be moved upwards or downwards by media interpretations of any decisions made.  So far, the price has remained pretty steady to slightly lower in Asian and European trade compared with Monday’s closing price, but we would expect that to change and the price to find direction as news from the meeting leaks out.

We will almost certainly have to wait on North American markets to sense any likely forthcoming serious price movement in the gold price as it is these markets that are driving the global gold price at present.  We take it as a foregone conclusion that the FOMC consensus will come up with a date for the commencement of tapering of the current bond buying programme, and how severe the taper will likely be.  The markets are currently assuming the taper will commence in the current month, with the programme likely involving $15 billion monthly reductions, suggesting an end-date of mid 2022.  Any departure from this projected programme would likely affect the gold price positively or negatively dependent on whether it suggests a slower or faster programme than generally expected.

But probably more significant is any clarification of if, and when, the Fed may start to raise interest rates to try and combat inflation.  The timing of such a move is far more contentious, with the markets anticipating a small rise in mid-2022 once tapering ends and possibly another increase later in the year.   The Fed may well, as we see it, disagree.  It may well welcome rising inflation alongside its current low interest rate policy in order to mitigate the costs of any debt repayment programme it may have in mind, and may also hold off on rate increases for fear of bringing equity markets down.  Rising equities are the most overt sign of a possibly improving economy and the Fed may not wish to interrupt this premise.

While unemployment does appear to be falling, it looks to be still well short of the Fed’s target of maximum employment at around 3.5% - the level which predated the onset of the virus pandemic.  This target is a key stated aim of the Fed and a premature rise in interest rates could well derail this and cause the deliberations at the meeting to end in delaying any such rises.

Obviously we will know more as news of the discussions filters out and we may have to wait for Fed chair Jerome Powell’s post-meeting statement before any fundamental analysis of what the FOMC has decided.  However, sometimes the ensuing statements are so opaque that interpretation thereof can be subject to dispute!  If it appears that a Federal Funds interest rate is perhaps further off than expected, then that could be positive for the gold price.  On the other hand any suggestion that earlier, or steeper, rises than the markets have been anticipating, that could set the gold price back a few dollars.

02 Nov 2021

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