New President, Same Fed Chairman Both Effect Gold Price

Gold prices continue to react to yesterday’s presidential election victory by President Trump. Economist, analysts, investors, traders have been laser focused on how the new president will impact the lives of American citizens as well as global citizens as all superpowers are interconnected. The fact that Donald J Trump’s campaign was quick and decisive one immediate outcome was that the tremendous level of uncertainty quickly diminished because of the peaceful transfer of power.

An immediate effect once it was clear that the outcome would be clear and decisive in an exceedingly timely manner was that the uncertainty premium in many sectors quickly diminished with each asset class reacting in a slightly different way to that of Epiphany. 

US stocks immediately stated a strong rally, this was based upon the fact that it is commonly believed that Trump is highly supportive of US businesses prospering and growing US stocks hit records for the second day and concurrently treasury yields dipped after today’s announcement by the Federal Reserve to cut rates.

The Federal Reserve continued on its current path to normalize interest rates effectively reducing them with the intended goal of using monetary policy. At this month’s FOMC meeting the Federal open market committee cut short-term interest rates for a second straight meeting this time by only ¼ of a percent after enacting a jumble 50 basis point rate cut in September. 

Today’s rate cut follows the enacting of a jumble 50 basis point rate cut in September. Yesterday crypto currency space, specifically bitcoin which gained approximately 10% in a single day resulting in the highest value for a single bitcoin in history. Although bitcoin has had larger single day gains, the back story behind its tremendous surge to approximately to about $75,000 was based upon the new administration’s far-reaching plans to incorporate crypto currencies in a much more far-reaching manner with in government treasury itself. (A dedicated article on the implications of the president elect and the price of crypto currencies will be detailed on our website in the crypto currency on our website by using this link: Bitcoin Minute | The Gold Forecast.

Mace news reported that, while reducing the funds rate, the FOMC continued “quantitative tightening.” The FOMC instructed the New York Federal Reserve Bank to roll over principal payments from the Treasury securities exceeding $25 billion per month. And it ordered the open market trading desk to reinvest principal payments from agency and agency mortgage-backed securities exceeding $35 billion per month – for a total of $60 billion in monthly shrinkage in securities holdings.”

Chairman Powell stated that” even with this cut policy is still restrictive”, while making it clear that the FOMC will keep reducing the key federal funds rates over the next two years - eventually to “: neutral” but in a cautious, conditional fashion, because the FOMC wants to avoid cutting rates either too quickly or too slowly.

The FOMC statement as dramatically modified its characterization of the labor market conditions to now say “they have generally used, and unemployment rate has moved up but remains low.” In regards to the monetary policy for the next FOMC meeting in December, the statement said, “In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the policy statement repeated.

 Powell gave no indication the FOMC is ready to alter the QT strategy.

In conjunction with the 25 basis point increase in the federal funds rate, the FOMC lowered the minimum bid rate on standing overnight repurchase agreement operations from 5.0% to 4.75%. The offering rate on standing overnight repurchase agreements was lowered from 4.8% to 4.55%.

Powell also said that “as the economy evolves, monetary policy will adjust in order to best promote our maximum employment and price stability goals” to this statement he added, “If the economy remains strong and inflation is not sustainably moving toward 2%, we can dial back policy restraint more slowly.”

The next time the FOMC will publish another fed funds. Plot will be on December 17 that 18th meeting, as noted by Powell. The chairman declined to say whether he still thinks 100 basis points of rate cuts will be appropriate next year.

Wishing you, as always good trading,