Waiting on The Fed

It is that time again. The Federal Open Market Committee (FOMC) monthly policy meeting for July is scheduled to begin tomorrow and conclude on Wednesday, when this month’s policy statement will be issued. Although it is widely believed that the Fed will stay the course, with no new major changes, it is the character and tone that market participants will listen to for insight into their future actions. Up until then, it is quite likely that we will see muted market action as far as gold and silver pricing goes, as traders and analysts await the conclusion of this month’s meeting.

In a note to MarketWatch, Steven Blitz, chief U.S. economist and managing director of global macro investments at TS Lombard, said, “The committee’s Wednesday communication is not expected to convey new policy directives but it may relay a shift in how current economic data fit into the Fed’s view of the world.”

Most importantly, market participants will listen intently for any revelation as to the mechanics and timeline of their intended liquidation of the Fed’s portfolio of treasuries and mortgage backed bonds. Given that their portfolio sits at a robust 4 ½ trillion dollars, the timeline and monthly cap limits are of critical importance as they will have the net effect of raising interest rates.

However, unlike a rate hike implemented by the Federal Reserve, the net effect of asset liquidation is unknown as this is the first time that the Federal Reserve has accumulated such a large portfolio. That means that the asset liquidation proposed by the Fed has no historical reference to give traders and investors a sense for how the markets will react.

Add to that the recent statements by Fed members conveying a much more dovish tone than previous statements, reflecting recent data pointing to a slowdown in inflation.

Gold prices are still settling after having a dramatic rise over the last few weeks. Last week alone, gold prices gained roughly 2% in value. Friday’s solid $10 gain was in response to a weak U.S. dollar as well as the current administration’s issues pertaining to the current investigation into possible Russian collusion.

As of 4 o’clock EDT, gold futures are currently trading up $0.70 on the day at $1258.60. After last week’s solid performance and upside move in gold, it would not surprise me to see the market consolidate in this area, even if it is destined for higher pricing.

Wishing you as always, good trading,