Gold is modestly defensive, weighed by softer oil prices and perhaps some profit taking ahead of Wednesday’s FOMC announcement. Hotter than expected May CPI, along with heightened geopolitical tensions are seen as supporting the yellow metal.
Islamic militants continue to advance toward Baghdad. The latest reports puts ISIS forces in Baquba, just 37 miles north of the capitol. Some have taken solace in the fact that Iraqi oil continues to flow, prompting a correction in the price of crude overseas. However, tensions in Iraq remain extremely high and oil has rebounded intraday.
Fighting in Ukraine continues as well. A Russian journalist was reported killed by a mortar blast, with one other member of the news team missing. Also, an explosion hit the Urengoy-Pomary-Uzhgorod Pipeline, which moves Russian natural gas through Ukraine to the rest of Europe. Kiev is suggesting it may have been an “attempted terrorist attack.”
U.S. CPI rose 0.4% in May, its biggest jump in three-years, driven mainly by food and energy prices. Housing starts fell 6.5% in May. While a drop was expected on the heels of the April surge, the drop to 1.0M was not as bad as 0.980M figure that was expected.
The FOMC began a two-day meeting today. Policy will be announced tomorrow at 14:00ET, followed by economic projections and press conference by Fed chair Yellen. The Fed is widely expected to hold steady on policy and the taper trajectory.
The market will be looking for clues as to when the Fed might start raising rates, but I don’t think those clues will be forthcoming. They have been walking-back rate hike expectations ever since Yellen’s “six-month” gaff in her first presser. I think the statement and Ms. Yellen herself will now remain studiously vague on the topic.