Gold Price Sharply Higher As Markets Brace For Dovish Fed

New York (Oct 28)  Gold prices jumped on Wednesday, as the spot prices per ounce stands at $1180 early in the North American session. The markets are keeping a close eye on the key event of the week, the Federal Reserve policy statement, which will be released later in the day. In other economic news, the US trade deficit narrowed in September and easily surpassed expectations. The weekly crude oil inventories came in at 3.4 million, shy of the estimate. On Thursday, the US releases two key events – Advance GDP and Unemployment Claims.

The markets are bracing for another dovish statement from the Federal Reserve, which could hurt the US dollar. Investors have therefore been snapping up gold on Wednesday, and the precious metal has gained over 1% on the day and is trading at a 2-week high. The Federal Reserve is not expected to raise interest rates, but any hints about a rate hike (which is unlikely) could send the US dollar sharply higher. What the markets would really appreciate is some clarity about its monetary plans. Gone are the days of the indecipherable Fedspeak from Alan Greenspan, whose statements looked like they were written in English but were ambiguous and obtuse in the extreme. At the same time, the current Federal Reserve has failed to communicate effectively with the markets, which continue to receive conflicting signals from Fed policymakers regarding the timing of a rate hike. These mixed messages are no accident, but rather reflect the divisions between voting Fed members with regard to a rate hike. This has led to volatility in the currency markets based on the public remarks of Fed members, even though such comments may be no more than the personal view of that individual, and do not represent actual Fed policy.

US durables, which helps gauge the strength of the manufacturing sector, were dismal in the September reports. Core Durable Goods Orders fell 0.4%, compared to the forecast of 0.0%. It marked the indicator’s first decline in six months. There was no relief from Durable Goods Orders, which posted a sharp decline of 1.2%, although this was within expectations. This was the indicator’s second straight decline, and these weak figures underscore a weak manufacturing sector, which continues to be hampered by weak global demand for US goods. Meanwhile, CB Consumer Confidence softened in October, coming in at 97.6 points, well off the estimate of 102.5 points. Weaker consumer confidence could translate into less spending by the US consumer, which would be bad news for the economy.