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If it Isn’t Broke Don’t Fix It

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This morning the Federal Reserve released the minutes from last month’s FOMC meeting. The minutes contained statements by Fed members indicating a more dovish stance regarding the next interest rate hike as well as the initiation of their balance sheet liquidation timeline.

Foremost in the minds of Fed members was the unexpectedly low inflation rate, which continues to track well below their 2% target. As such, the probability of an interest rate hike this year has been significantly reduced, at least in the minds of market participants and analysts. As far as raising interest rates are concerned: if it isn’t broke don’t fix it.

As reported by Reuters, “Federal Reserve policymakers appeared increasingly wary about recent weak inflation and some called for a halt to further interest rate hikes until it was clear the trend was transitory, according to the minutes of the central bank's last policy meeting... In the minutes, released on Wednesday, policymakers had a lengthy discussion about a recent streak of soft inflation readings.

Inflation has remained below the central bank's two percent target for more than five years. Many participants ... saw some likelihood that inflation might remain below two percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside," the Fed said in the minutes.”

Is it Time for a Fire Sale?

Another topic at the core of last month’s FOMC meeting was the upcoming liquidation of their massive $4.5 trillion asset portfolio. This portfolio is the accumulation of central bank purchases that were made during the eight years of quantitative easing as one of their primary tools to revitalize the economy and end the recession that began in 2008 – 2009.

Fed minutes state that they are closer to the initiation of a central bank asset reduction. Many Fed members were prepared to announce a start date at the June meeting, however “most preferred to defer that decision until an upcoming meeting."

Gold prices had been trading moderately higher just before this morning’s release of last month’s FOMC minutes. Market participants reacted quickly and bid gold and silver prices up, as they sold the dollar immediately following the release of the minutes. As of 3 o’clock EDT, gold futures are currently trading at 1288, up $8.30 on the day, and spot gold is currently trading at $1281.70 for a net gain of $10.60.

Today’s upside move in gold prices is a combination of a weaker U.S. dollar and market participants bidding up the precious yellow metal. According to the Kitco gold index (KGX), spot gold is currently trading up $10.90 at $1282, with $4.60 of today’s gains attributable to a weak U.S. dollar and the remaining $6.30 attributable to the desire of market participants to bid up gold prices.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer