All Eyes On Fed – Myth Of All Powerful Central Banker Continues

Gold rose 1.3% yesterday ahead of the Federal Reserve interest rate announcement today. Markets remain divided and uncertain whether the Fed will increase rates by 25 basis points today (1900 GMT).

The Fed last raised interest rates in June 2006, by 25 basis points to 5.25%, shortly after that America’s central bank found itself reducing rates and since December 2008 the Fed’s benchmark interest rate has been set between 0.0% and 0.25%. Gold prices rose in the months after the interest rise and were 23% higher in 2006.

Janet Yellen, Ferderal Reserve Chairwoman

Lower than expected U.S. inflation numbers yesterday eased fears the Fed will hike interest rates later this session. The dollar came under pressure today after the weak inflation data led traders to pare bets that the U.S. Federal Reserve will deliver an interest rate hike.

The ‘will they or won’t they’ speculation is rife and all consuming in markets. The Fed will hold rates near unprecedented historic lows at 0.25% and not have its first interest rate rise in nearly a decade, according to a little over half of economists in a Reuters poll who only last week narrowly predicted the Fed will increase rates by 0.25% today.

Since last week’s poll, five economists have changed their prediction for a hike and now expect the Fed to keep rates at 0.25%. None changed their view from a hold to a hike, suggesting that momentum is moving against a Fed move this week. The number of economists predicting no change in rates now outnumbers those betting on a hike by 45 to 35. Among primary dealers, 12 banks expect the Fed to hold and the remaining 10 expect a hike.

Markets do not like uncertainty and there is the possibility of volatility and sharp moves in markets during and after the decision.

With regard to gold, the perception and narrative is that a rise in rates, even by a very marginal 25 basis points will be negative for gold. This may be true in the short term as perception, even misguided perception, can drive markets in the short term. As can hedge funds and banks who are short the market or desire lower gold prices – for whatever reason.

Read more on the GoldCore.com blog

DAILY PRICES
Today’s Gold Prices: USD 1118.15, EUR 987.46 and GBP 720.64 per ounce.
Yesterday’s Gold Prices: USD 1109.75, EUR 987.54 and GBP 719.82 per ounce.
(LBMA AM)

Gold rose 1.3% or $14.20 to $1,124.22 while silver gained 3.5% or 48 cent to $14.91 an ounce on the COMEX yesterday ahead of the Federal Reserve interest rate announcement today.

IMPORTANT NEWS

Gold Shortage Theory Derided as Comex Seen Well Supplied – Bloomberg
Gold retains gains on soft US inflation data; all eyes on Fed – Reuters
Gold Futures Rise as U.S. Consumer-Price Drop Eases Rate Concern – Bloomberg
Gold logs largest 1-day price gain in nearly a month – MarketWatch
Gold rises after unexpected drop in U.S. inflation – Reuters

IMPORTANT COMMENTARY

A central banker after midnight – MoneyWeek
Video: Fed Audit Shocker – Best Evidence
Will They Or Won’t They? Five Fed Scenarios & The Market Impact – Zero Hedge
Merk: “Gold may add valuable diversification to their portfolio” – Zero Hedge
London is looking wobbly – but when will UK house prices top out? – MoneyWeek

Read more News and Commentary on GoldCore.com