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What Could Fed Minutes Do For Gold Today?

By Investing.com (Barani Krishnan/Investing.com)CommoditiesAug 19, 2020 02:38AM ET
www.investing.com/analysis/what-could-fed-minutes-do-for-gold-today-200534512
What Could Fed Minutes Do For Gold Today?
By Investing.com (Barani Krishnan/Investing.com)   |  Aug 19, 2020 02:38AM ET
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In their typical form, the Federal Reserve’s meeting minutes—usually released three weeks after its Federal Open Market Committee sits—articulate what the FOMC did not say in its monthly interest rates announcement. 

The minutes give specifics on the economic concerns expressed inside the room by the different Fed governors (anonymously, of course) and the consensus achieved. The details often reveal an interesting nugget or two of information not relayed during the post-meeting news conference of Fed Chairman Jay Powell.

The highly-charged debate on how the U.S. economy is faring amid the coronavirus pandemic is what makes today’s minutes from the July 28-29 meeting super important to forex, equity and precious metals traders.

The next rate decision isn't until Sept. 16. Between now and then, individual Fed governors will express their thoughts on the economy and specifics such as employment and inflation, but today’s minutes on the July meeting are particularly crucial to a highly-strung gold market. The Fed will release the minutes at 2:00 PM ET (18:00 GMT).

In Tuesday’s trade, gold futures in New York broke above $2,020 an ounce the first time in a week, before the benchmark December gold futures on COMEX settled up $14.40, or 0.7%, at $2,013.10. It was a remarkable turnaround for a market that just a week earlier crashed $92 in a day, falling almost $130 from session highs of $2,040.50 to lows of $1,911.30.

Gold Futures Weekly Chart
Gold Futures Weekly Chart

Tuesday’s rebound in gold did not come without volatility, with the December contract falling $35 intraday to a session low of $1,985.20.

The swings continued in this morning’s session in Asia, with December gold going from a peak of $2,015 to $1,999.20.

Gold May Regain Poise If Fed Hints At Yield Curve Control

Gold’s continued rise was stalled by a rebound in the dollar and relatively better-performing U.S. Treasury yields. All attention is now on the Fed minutes, to see if that could make a difference to gold’s upside.

“The bright metal could regain poise should the minutes of the Fed's latest meeting hint at yield curve control or project dour long-term economic outlook,” FXStreet’s Dhwani Mehta said in a post.

The Dollar Index, which was tottering on Tuesday at a two-week low of 92.11, stabilized, closing at 92.26 Tuesday and reaching 92.34 on Wednesday.

Yield on the benchmark U.S. 10-year Treasury note, which plunged almost 3% in two previous days, was down just about 1.7% on Wednesday at time of writing.

The dollar extended its gains against the Swiss franc and, more importantly, the euro. A Reuters report quoting an anonymous senior U.S. official as saying there was 'real desire' between the Trump administration and rival Democrats in Congress to reach a deal on a new $500 billion coronavirus relief package helped the dollar’s rebound. The Dollar Index pared some of its recent losses on the assumption that a U.S. recovery will help the greenback ultimately, although in the near-term, a stimulus meant currency debasement.

The “fiscal stimulus bill … is desperately needed to shore up a fragile U.S. economy,” brokerage OANDA said in a note.

“The lengthy delay, which unsurprisingly is along partisan lines, is making investors nervous. As well, the Trump White House is sparring with the Democrats over mail-in voting, which is also taking a toll on the U.S. dollar.”

Fed Minutes Aside, Outlook For Gold Remains Decidedly Bullish 

Beyond that, the outlook for the dollar and Treasury yields remain bearish, meaning investors had little recourse but to find comfort in safe-havens, especially gold.

That raises the question of how important really are the Fed’s minutes beyond today’s trade.

“The Federal Reserve remains in accommodative mode and has kept interest rates close to zero as the economy struggles with the Covid-19 pandemic,” OANDA said in its note.

Indeed, since the start of the U.S. coronavirus outbreak in March, the FOMC has vowed to keep U.S. rates at near zero until the United States recovers from the pandemic. The Fed has also allocated a few trillion dollars under its own unlimited balance sheet, aside from what Congress has budgeted, to provide lending to distressed businesses and credit markets.

The only thing that could offer a variance to the view is what the Fed thinks of economic recovery since the start of the third quarter. For the first quarter, the U.S. economy contracted by 5% and for the second it shrank by an unprecedented 33%, resulting in the worst recession ever in U.S. economy.

That said, U.S. jobs recovery from the pandemic has been brisk, with about 10 million jobs added in the last three months since the loss of 21 million jobs between March and April. The Fed’s views on the labor market are expected to be the only positive element in the minutes as the COVID-19 pandemic continues to impact the economy.

UBS Projects $2,300 Gold In Near-Term

As for gold itself, its ability to repeatedly return to the $2,000 level Wednesday despite the best efforts of the bears to crush that support was testimony that a retest of last week’s highs was still in the cards.

Gold has some way to go before it can rewrite the Aug. 7 record high of nearly $2,090 on COMEX. Just a few weeks back, a gap of less than $100 on the upside could have been closed in two or three sessions. But the events of Black Tuesday may have changed that. 

Some say an attempt for $2,100 pricing or higher will take longer to materialize than it typically would have at the start of August, given the attendant volatility that’s come into the market over the past week.

Even so, UBS said in a note that it saw gold rising to $2,300 in the near-term in the event of an escalation of geopolitical tensions, particularly a heightened U.S.-China showdown that could send more investors toward safe-havens. 

“As long as spot holds above $2,000 in general and the $1,975-$1,967 support cluster, spot gold is likely to touch the previous break down areas $2,029-$2,039,” said Sunil Kumar Dixit, an independent precious metals chartist.

“And if enough buying triggers, the metal can march ahead to retest the spot price’s record high of $2,075.”

What Could Fed Minutes Do For Gold Today?
 

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What Could Fed Minutes Do For Gold Today?

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Comments (17)
Jan Skilbrei
Jan Skilbrei Aug 20, 2020 12:53AM ET
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I really like your repky, its actually educational, and warns as not to be naive, «they» really cooperate to more easily «take» money, its immoral, should be illegal, to communicate among the «big», to act in consort, if they do so
Adil Khan
Adil Khan Aug 19, 2020 5:04PM ET
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Looks like going to 1800 soon
Adil Khan
Adil Khan Aug 19, 2020 2:23PM ET
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Wow was not expecting massive sell off
Adil Khan
Adil Khan Aug 19, 2020 2:02PM ET
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Reversal started for upside
Deborah Sbeghen
Deborah Sbeghen Aug 19, 2020 1:21PM ET
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We know by historic data that Gold is bullish, but one should really define it´s trading style. For a portfolio hedge, I wouldn´t mind holding it forever, buying it even now and holding it up worryless. But short term trading is not about the long term look only. If you are trading, you know the support is at 1860 and that is where institutions will wait for it to swing back up, Meanwhile manage risk and just mind your indicators. No passion is allowed in trading.
Barani Krishnan
Barani Krishnan Aug 19, 2020 1:21PM ET
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Words of wisdom, Deborah. Thanks.
Adil Khan
Adil Khan Aug 19, 2020 1:19PM ET
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Not sure how the gold price will react after the minutes are out in 40 minutes . But so far action is pretty bad for further downside . Any comments or view ?
Matheus Martinelli
Matheus Martinelli Aug 19, 2020 1:14PM ET
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Your articles are very good!
Barani Krishnan
Barani Krishnan Aug 19, 2020 1:14PM ET
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Thanks much, Matheus. Remarks like this keep me going :)
Alex Alex
Alex02 Aug 19, 2020 12:32PM ET
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I'm afraid this is not an complete view. The COT report clearly shows that MM didn't follow the recent move up and they even reduced their long position as the price was breaking above $1,800. This is clearly indicating a retail traders rally, not sustainable. Coupled with the level of optimism about gold, it does call for a deeper correction than everybody expect. Gold/silver always work that way, squeezing FOMO long position before starting to accumulate again on capitulation on the downside. Gold could drop back around $1,850 and potentially extending below $1,800 without challenging the long term uptrend. That would be a much safer entry point going long (together with USD at a stronger level as well).
Barani Krishnan
Barani Krishnan Aug 19, 2020 12:32PM ET
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Alex, yes, but the long crowd also sees the momentum as a signal sometimes to reenter the trade. There is no perfect correlation out there. But thanks much for the perpsective.
Invest Right
Invest Right Aug 19, 2020 12:32PM ET
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Agreed. A much wider perspective is needed to assess the true value of gold and the price action. This recent rally that got us to 2085+ completely disregarded the weakness of the dollar. People are in for a brutal surprise if the dollar strengthens, which it definitely can, after hitting 2-year low.
Keith Messmer
Keith Messmer Aug 19, 2020 12:12PM ET
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Until we get a handle on this pandemic and get passed the election, Indont think anyone can predict what will really happen with gold and silver. Every rime rhere is an issue in the economy the finacial sector turns to gold and silver only to dump it the moment there is any sense of security in the market. It happens all the time. The only thing that makes this interesting is the fact we have civil unrest, the pandemic, and an election all at the same time. Had we had only one or two of these events i dont think the prices for gold and silver would have risen to their current heights at all. Its mostly panic buying just like the gun and ammo markets.
Barani Krishnan
Barani Krishnan Aug 19, 2020 12:12PM ET
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Absolutely true, Keith. It's da "moment" that has resulted in the momentum :)
Sunil Kumar Dixit
Sunil Kumar Dixit Aug 19, 2020 12:12PM ET
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Barani Krishnan  Beautifully explained sire Da moment resulted in the momentum, Thy metaphors are as beautiful as thy analysis.
Barani Krishnan
Barani Krishnan Aug 19, 2020 12:12PM ET
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Sunil Kumar Dixit  Ha ha ... as yours are too. Keith, meet my one of my fav candle chartists, Sunil Kumar Dixit. Seek out his tech views on precious whenever you need.
Adil Khan
Adil Khan Aug 19, 2020 11:44AM ET
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Gold is under heavy accumulation under any time frame you see . Actuslly accumulation and dustrubution curve has broken previous price highs . Price will follow shortly .
Barani Krishnan
Barani Krishnan Aug 19, 2020 11:44AM ET
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Yes, the data points to it, Adil.
Eric Haberman
Eric Haberman Aug 19, 2020 10:46AM ET
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gold about to get the hammer and crush bug dreams for years
Barani Krishnan
Barani Krishnan Aug 19, 2020 10:46AM ET
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You must understand that a $50 move in either direction in gold now has become norm. I wouldn't it a hammer or crush of bug dreams, as much as what your book might say.
JG FEN
JG FEN Aug 19, 2020 10:46AM ET
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Please rationalize this one for me because your statement makes about as much sense as 2+2=5
steve fox
steve fox Aug 19, 2020 9:59AM ET
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I do not understand, dxy is down but gold and silver also being hammered
Show previous replies (4)
Barani Krishnan
Barani Krishnan Aug 19, 2020 9:59AM ET
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steve fox  Anytime, mate. I don't trade myself, but I believe in gold more than the fiat. The dollar will have its day -- someday. Not now, that's all.
Barani Krishnan
Barani Krishnan Aug 19, 2020 9:59AM ET
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steve fox  Also watch market closely between now and 1:30 ET Comex settle and of course, 2:00 ET Fed minutes. Gold could see a pop before the Fed and some will rush out of the dollar.
steve fox
steve fox Aug 19, 2020 9:59AM ET
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comex settle at 1:30 ? I'm not too familiar with the futures market, I trade loco London only, I don't even know the mechanics of the futures market, lol
Barani Krishnan
Barani Krishnan Aug 19, 2020 9:59AM ET
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steve fox  Ha ha .. no worries. This page, it usually updates at 2:00 pm but settlement will be at 1:30 (it will say "preliminary" settlement for the day -- ignore the language. It IS the settlement for the day): https://www.cmegroup.com/trading/metals/precious/gold_quotes_settlements_futures.html
Barani Krishnan
Barani Krishnan Aug 19, 2020 9:59AM ET
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steve fox  Look for the most-active December contract on that Comex settlement page.
Shaheen Hays
Shaheen Hays Aug 19, 2020 9:00AM ET
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But all this trading is almost all in paper ans futures which is driving upnthenprice , yes the physical demand is strong but in reality right now maybe 30-40% is being moved right now phsycally compraed to pre covid. In real terms gold is in for a big correction at some point
Barani Krishnan
Barani Krishnan Aug 19, 2020 9:00AM ET
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Correction upwards, yet. Not below.
Abdelraziq Abuaisha
Abdelraziq Abuaisha Aug 19, 2020 6:17AM ET
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Very informative article dear writer. If you want to follow dollar inflation, you will find it in two areas; world indices and metals, when you print more money expect the currency to devaluate. As long as there’s no economic activity, this currency has no legs, you know dear writer in the basic understanding; values with no activity are considered as bubbles, what is so unique this time is that we’re talking about the dollar becoming a bubble, all what you need is to be patient until this bubble bursts.
Barani Krishnan
Barani Krishnan Aug 19, 2020 6:17AM ET
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Thanks much for your feedback, Abdelrazif. Indeed, I do not see any reprieve for the dollar for at least a few more quarters.
Józsefné Dudás
Józsefné Dudás Aug 19, 2020 6:17AM ET
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L9 K8 I think 🤔
Józsefné Dudás
Józsefné Dudás Aug 19, 2020 6:17AM ET
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Thanks a million 55 for
Fernando Lazarini
Fernando Lazarini Aug 19, 2020 5:12AM ET
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Easy: keep printing
Barani Krishnan
Barani Krishnan Aug 19, 2020 5:12AM ET
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That's what they are doing.
Jusuf Seferi
Jusuf Seferi Aug 19, 2020 5:12AM ET
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if they print, should gold go high?
emad hijazi
emad hijazi Aug 19, 2020 4:04AM ET
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Thank you . informative.
Barani Krishnan
Barani Krishnan Aug 19, 2020 4:04AM ET
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Thanks much, Emad.
EDWIN MWIJUKA
EDWIN MWIJUKA Aug 19, 2020 2:58AM ET
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Well put piece Mr.Barani
Barani Krishnan
Barani Krishnan Aug 19, 2020 2:58AM ET
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Thanks much, Edwin.
 
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