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.
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.”