The Federal Reserve has released the minutes from its last policy meeting (held in December) and the outlook appears rosy for the gold bulls.
Prior to the release of the minutes, there was speculation that the notes would reveal that the Feds weren’t quite as ready to hit the breaks on interest rate increases as had been previously suggested.
While Chairman Powell sparked hope that a round of rate cuts would be next up at his press conference concluding the December FOMC meeting, more cautious economists suggested that these comments had been blown out of proportion. Some worried that with inflation still running a way above the often cited 2% target, rate cuts would not take place as soon as the markets had expected. If the minutes underlined that more pessimistic view, the U.S. dollar would be boosted, making life more challenging for the bulls.
In fact, the minutes did not support that view. They didn’t provide any more clarity as to when rate cuts would actually begin, but the overall tone reaffirmed the view that inflation was not back under control, allowing the Feds to shift its focus to protecting the economy and unwinding some of the rate increases it had imposed.
The minutes reveal that most meeting participants agreed that the risk posed by renewed inflation had diminished. Some also raised concerns that a new problem was now on the table; that of slowing jobs growth and more challenging economic conditions as a result of the more restrictive policy.
“Several participants noted the risk that, if labour demand were to weaken substantially further, the labour market could transition quickly from a gradual easing to a more abrupt downshift in conditions,” the document notes. This signals a shift in focus, with concern now turning to protecting the economy and prioritising a soft landing rather than damping down inflation at any cost. This was further cemented by acknowledgement that “an unusually elevated degree of uncertainty” shrouded the economic outlook.
Capital Economics’ chief North American strategist, Paul Ashworth says the minutes favour the view that rate cuts will commence sooner rather than later. “There is nothing in these minutes to dissuade us that the Fed will start to cut interest rates from this March onwards,” he said. This is overwhelmingly bullish for gold, given prices surged immediately following the December FOMC meeting when Chairman Powell indicated that interest rate hikes were about to become a thing of the past.
Expect the gold bulls to gain further strength from this additional insight. Don’t wait for prices to rise higher as the market conditions align for another surge.
