Gold Slides Amidst Fed Chatter While Equities Rise On Oil Jump

Gold slipped a bit more today in the face of comments from the Federal Reserve and one data point that could point more strongly in the direction of a rate hike in December. Equities moved higher on oil price spike, but we feel they are probing new tops and the pullbacks we are seeing are “technical” in the broad sense of the word.

Oil was higher by nearly 4.50% on new rumors about an OPEC production freeze. However, West Texas Intermediate is still below its September high, reached on the eighth.

A host of regional Federal Reserve officials are weighing in with their opinions on the direction they believe interest rates should take and why. Among them are: San Francisco Fed President John Williams; St. Louis Fed President James Bullard; Kansas City Fed President Esther George; Cleveland Fed President Loretta Mester and Chicago Fed President Charles Evans.

(Some are speaking late in the day. We will discuss their comments as they become available.)

In one instance, we are looking for some real meat on the bones of one Fed president’s commentaries.

"It is getting harder and harder to justify interest rates being so incredibly low given where the U.S. economy is and where it is going," San Francisco Federal Reserve Bank President John Williams said in an interview at his reserve bank's headquarters.

"I would support an interest rate increase," he said. "I think that the economy can handle that. I don’t think that would stall, slow or derail the economic expansion."

He also said, "My worry is very much that if you try to, in a way, get greedy and say, ‘Let’s see how low this will go,’ you set in motion a process that causes the economy to go in reverse. There are risks to pushing things too far."

He should explain how low interest rates (versus higher) would cause the economy “to go in reverse.”

In her semi-annual testimony to the House of Representatives, Fed Chair Janet Yellen stated that accommodative policy would be altered if the economy continues to improve as expected. She cited a continuing robust labor market and a very steady unemployment rate. As in the past, Yellen said there was no fixed schedule for a hike, though comments from the Fed last week suggest a December increase is a very real possibility. 

In economic news, U.S. durable goods orders for August came in unchanged versus an anticipated decline. However, there was better news in that core capital goods orders rose for a third straight month.

The dollar was down to mixed against other major currencies and the benchmark U.S. 10-year bond yield held just below 1.60%. Those two readings show that the more strictly defined financial community has yet to take the idea of an interest rate rise very seriously.

On news that Deutsche Bank’s stock price is rebounding, all European bourses were up strongly for the day. In Asia, the Nikkei was off 1.30% on the weaker dollar/stronger yen and the potential impact on Japanese export companies. Japanese analysts see the dollar as heading toward even lower territory.

Wishing you as always, good trading,