Mixed Messages

While the Fed left in place its notation that interest rates would remain stable for a “considerable time,” they also boldly underscored progress that was being made. Inflation is nearing the initial target of 2 to 2-1/2% (although plunging oil prices won’t assist in that), and the labor force’s long-standing underutilization is diminishing.

The statement released today went on to say, speaking from both sides of the Fed’s collective mouth:

“However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”

At first, gold investors and traders bid up the metal. Then, as other minds took heed, it was pushed down. Equities are the biggest gainers on the day, the Dow, S&P and NASDAQ up 1.70%, 2% and 2%, respectively. So, money clearly began moving into that class of investment.

The troublemaker, crude oil, was up about 35 cents, a meaningless number given its previous plummeting. Bond yields rose modestly.

Incongruously, the dollar strengthened, which lent the meaty part of the weakness to gold. Through whichever means blowing the hardest, it seems as if gold is on its way to testing if not its previous 2014 bottom, at least on its way to probing for a meaningful current bottom. (See Market Forecast.)

The word “patient” in the Fed statement was also tied into Chairwoman Janet Yellen’s allusion to the idea that the Fed would not even be considering rate hikes for the next couple of meetings. There are meetings in late January, mid-March and late April. If conditions warrant, April could be the beginning of such deliberations. However, the two hawkish dissenters will no longer be on board; but neither will the committee’s most dovish member serve. In general, the FOMC will be more centrist except for the leadership, which tilts dovish.

Like the Fed on larger issues, we counsel patience in gold trading right now.

Wishing you as always, good trading,