FX Spotlight | Gold to stay firm post-FOMC | Article – HSBC VisionGo
- The FOMC neither made any policy changes nor provided any specifics on taper timing at its July meeting
- This fostered little USD change, while US Treasury yields declined, and gold reversed its earlier intra-day loss
- As tapering does not appear imminent, gold is likely to push slightly higher over the near term, in our precious metals analyst’s view
The July FOMC meeting delivered no material surprises
The Federal Open Market Committee (FOMC) did not make any policy changes following its 27-28 July meeting. The FOMC voted unanimously (11-0) to keep the federal funds target range at 0-0.25% and to maintain the current USD120bn per month pace of asset purchases. The statement was little altered in terms of tone from that delivered at the June meeting, but the Committee now notes that the “economy has made progress” towards its maximum employment and price stability goals, but fell short of describing this as “substantial progress”.
Fed Chair Jerome Powell did not provide any specifics on taper timing
The Federal Reserve (Fed) Chair Jerome Powell said that the July meeting was the first time that the FOMC began a “deep dive” on the issues of time and pace and composition of tapering and that no decisions had been made. Further progress on job creation would have to be made. He also said the FOMC had not coalesced around any firm date for tapering or expectation about how long achieving “substantial further progress” might take. Our economists think the FOMC's forward guidance will evolve further in September and November, and expect a formal tapering announcement in December.
Our economists think the Fed continues to pursue a cautious, gradual approach to any policy changes
Elsewhere recent elevated inflation readings failed to prompt a change in language on that front, and the characterisation around growth was little changed. Fed Chair Powell reiterated that recent inflation spikes may be largely transitory, and stressed that the FOMC is not actively considering any adjustments to its policy rates. Our economists surmise that from Fed Chair Powell’s overall comments that the Fed continues to pursue a cautious, gradual approach to any policy changes.
The taper is closer but not yet upon us, supporting gold, in our precious metals analyst’s view
How does this all stack up for gold and the USD?
In our precious metals analyst’s view, there were not enough concrete comments on tapering – which the gold market is very sensitive to – to take gold higher. Rather, the overall tone of the FOMC drove US Treasury yields lower and fostered little USD change. This leaves room for gold to stay above USD1,800 per ounce. Our precious metals analyst thinks the ongoing view that inflation spikes are mostly transitory and that the FOMC is not actively considering policy adjustments at the moment is mildly bullish gold at best and neutral at worst.
In our view, no policy change, only a modest shift in the statement’s language and no new taper insights have understandably fostered little USD change, for now.
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