Markets Brace for Fed members statements and multiple reports this week

Today's report is a Special Morning Edition: Has gold traded to a double bottom?

Investors are closely parsing the latest economic projections and statements from the Federal Reserve following last week's pivotal policy meeting. The central bank's updated summary of economic projections showed a surprising shift, now signaling just one quarter-point interest rate cut is likely in 2023 rather than the multiple reductions markets had been anticipating.

However, many analysts believe the Fed's latest "dot plot" of individual members' forecasts may be underestimating building economic headwinds. "The dot plot is what officials are thinking will happen, not a forecast," cautions Tom Porcelli, chief U.S. economist at RBC Capital Markets. "Just as the dots shifted between March and June, we could see opinions shift between now and September."

Despite the Fed's official projection of just one rate cut this year, Porcelli sees potential for two reductions. "Even though the dots suggest one cut this year, there's good reason to think we may actually get two, with the first one coming in September followed by another in December," the strategist stated.

Market participants will be monitoring a host of upcoming economic data and Fedspeak over the weeks ahead to assess if additional policy easing may indeed be warranted. Key releases on tap include retail sales, industrial production, housing data, and flash PMIs which could offer insight into the resilience of consumer spending and overall growth.

"Investors will closely monitor Fed officials' statements, alongside key economic releases...to assess the potential for multiple rate cuts this year," noted Margaret Yang, market analyst at Saxo Bank.

Yields on U.S. Treasuries rebounded early Monday, raising the opportunity cost of owning non-yielding gold. But the precious metal had rallied at the end of last week "in response to an unexpected drop in U.S. consumer spending," Yang added. Political turmoil in Europe exacerbated gold's safe haven bid, with "uncertainty causing traders to prefer dollars and gold over the euro."

A number of Fed officials are scheduled to deliver public remarks this week, potentially providing further policy clues. Speakers include Governor Lisa Cook, Philadelphia President Patrick Harker, New York President John Williams, and former Chicago Fed President Charles Evans.

Evans stated in an interview Monday that he believes a September rate cut is "possible" and warranted "if the data deteriorates." Harker offered a similar assessment, saying the Fed would likely deliver one rate reduction this year under his baseline economic forecast. Minneapolis Fed President Neel Kashkari went a step further on Sunday, calling it a "reasonable prediction" that the central bank cuts rates once in 2023, likely in December.

Analysts at TD Securities believe gold could continue benefiting in this environment of rising rate cut expectations. "Back-to-back weaker-than-expected inflation prints, along with the less hawkish details of the FOMC meeting, have seen appetite for gold increase," the firm's strategists wrote.

While the Fed sounded more hawkish than anticipated last week, Anish Varghese, chief investment strategist at JPMorgan Chase, put the central bank's stance in perspective: "The Fed was on the wrong side of the whole 'transitory inflation' call a couple of years ago, and they clearly don't want to be caught offside again. Once bitten, twice shy."

In the latest pricing, gold futures for delivery in August settled at $2,329 per ounce in New York trading on Friday. The contract has since ticked higher to $2,334.90 in electronic trading.

Wishing you as always good trading,