Gold Keeps Gains as Fed Minutes Show Doubts About Rate Policy

Oil prices rose and the dollar weakened Wednesday as gold futures maintained a three-week high even as the release of FOMC minutes seemed to suggest a more aggressive rate hike schedule was being considered, according to MarketWatch.

After its vote last month to raise the Federal funds rate 25 basis points, the Fed estimated three quarter-point rate increases for 2017. However, the FOMC minutes suggested there were a “number of risks” that would necessitate a “different path of policy” than they expected. One of those “risks” was clearly Trump’s stimulus plan, and the “uncertainty regarding fiscal and other economic policies.”

Normally, the suggestion of more rate increases would have sent the dollar higher and gold prices lower, but in this case, the Fed’s comments seem to have rung hollow for many gold investors.  Shortly after the release of the minutes, February gold futures hit $1,165.30 an ounce in electronic trading, a gain of $3.30 and the highest finish since December 12.

One likely cause for gold holding its ground is the continued uncertainty surrounding Trump’s plans, which the Fed admitted had “increased”. “There is a nice mix of uncertainty and concern on economic conditions moving forward and this should help keep a bid under gold,” stated Bill Baruch, chief market strategist at iiTRADER.

The nonfarm payroll numbers come out this Friday, and Baruch sees them as influencing what “gradual” paced rate hikes will look like moving forward. With respect to gold prices, Baruch sees a “big resistance at the $1,175 level and big support building at $1,145.”

While the uncertainty of Trump’s economic plans keep investors hedging their bets, the reality of lower taxes and fiscal spending will likely bring about absolute uncertainty about wider budget deficits and how the Fed will monetize them. Janet Yellen has already stated the Fed will hold its balance sheet steady by rolling over maturing treasuries until “the process of normalization of the federal funds rate is well underway.” But kicking the can down the road doesn’t fix the looming currency crisis nor does it instill confidence in the public.

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