Jerome Powell’s Words Move Markets

To be more precise it is the Federal Reserve’s decisions and monetary policy which is the underlying cause of today’s market moves, and as the head of the central bank Jerome Powell delivered the message in a press conference following today’s conclusion of the FOMC meeting.

What he said was, “The case for higher interest rates has "weakened”. He cited multiple reasons for this decision, which include muted inflation, and slower than expected economic growth in the United States. Most importantly he stressed the word “patient” in regards to future moves by the central bank.

Another extremely important statement made by Powell today was in regards to the tremendous balance sheet of assets currently held by the Federal Reserve. Up until this point their liquidation of assets is on autopilot. When the Fed first announced they would begin to liquidate their assets they put a protocol in place which ramps up at a pre-designated time point, and has been decreasing the balance sheet since they began their liquidation sale.

According to the Federal Reserve the central bank has reduced their asset sheet by almost a half of a  trillion dollars. The following quote is taken directly from the board of governors of the Federal Reserve system website, “Since the beginning of the financial market turmoil in August 2007, the Federal Reserve’s balance sheet has grown in size and change in composition. Total assets of the Federal Reserve have increased significantly from $870 billion on August 8, 2007, 24.5 trillion in January 14, 2015, and have been declining since the beginning of the FOMC’s balance sheet normalization program in October 2017.”

Balance sheet reduction is currently “unwinding.” A term coined by the Fed. However, the monthly reduction has been hardwired into current policy, with a precise an exact amount of liquidations each month. The fact that the Fed is now sensitive to that liquidation is possibly one of the most important components of the statement released today.

Gold exhibited a double dose of bullish influence, as a weaker dollar creating value for gold Along with long positions pushing the precious metal higher. It was dollar weakness that had the greatest influence on the gains in the precious metals.

The dollar index lost almost a 0.5 % in trading today closing at 95.085. On a technical basis we do not see any major support coming in until 94.00, meaning  that the dollar most likely will drop another full percentage point.

As of 5:07 PM Eastern standard time spot gold is currently fixed at $1319 per ounce, after adding a net gain today of $7.70. According to the KGX (Kitco gold index) dollar weakness contributed roughly $6.20 to today’s gains, with the remaining 1.50 in gains directly attributable to buying.

Wishing you as always, good trading,