Gold struggles as concerns over next FOMC meeting escalate

It has been an extremely difficult week for gold losing around $ 36. Gold futures are based on the most active December 2021 contract opened on Monday at $ 1,790 and is currently pegged at $ 1,753.90. Today, gold continued to decline, albeit slightly, falling $ 2.80 on the day.

Yesterday’s collapse of $ 41 in gold was a partial result of the strength of the dollar, however, which was responsible for only a small part of the decline. The main cause of yesterday’s drop was a direct result of the US Census Bureau’s monthly report on sales and foodservice for August 2021. Analysts polled by various news sources estimated that the report would show that sales in the US. retail were down -0.8%. down -1.8%. The actual numbers were the opposite of economists’ forecasts and predictions.

The report showed that consumer spending rose 0.7% last month, leading to sales of $ 618.7 billion. A stronger indication of the robustness of retail sales in August can be seen if you remove auto and truck sales, which would then lead to an increase in consumer spending of 1.8%. While demand for automobiles and trucks was strong, it was supply limitations that dampened these sales.

As the Federal Reserve is due to begin its September FOMC meeting on Tuesday, September 21, the real question is how Federal Reserve members will interpret recent data and their overall outlook for economic recovery in relation to the announcement. as long as they start cutting their monthly budget. asset purchases of $ 120 billion.

The data they will examine is mixed. The August jobs report is extremely weak and well below economists’ expectations and forecasts. Expectations for the US Department of Labor’s August jobs report were that 720,000 new jobs would be added to non-farm payrolls. The actual report showed that only 235,000 new positions were added last month. The Federal Reserve has since publicly stated that maximum employment is their ultimate goal in their dual tenure, which also includes keeping inflation pressures around 2%. This should be the most important report when the Fed meets next week to consider changes to its current monetary policy.

This week, the Bureau of Labor Statistics released its current inflation figures, the CPI (Consumer Price Index). The report indicated a 0.3% increase in August on a seasonally adjusted basis after increasing 0.5% in July. This clearly showed that inflationary pressures had not diminished significantly. The year-on-year inflation rate fell from 5.4% to 5.3%. It should be noted that inflationary pressures above 5% are at their highest level since the recession of 2009.

The net result of all reports combined confirms that the US economic outlook continues to contain a tremendous amount of uncertainty. While the Delta variant of Covid 19 has started to show declines in terms of daily cases reported in the United States. But there are still hot spots in the United States that continue to increase at an alarming rate.

With a lukewarm employment report in August versus strong retail sales in August, members of the Federal Reserve have to contend that economic growth is still weaker than expected but is recovering nonetheless. This has divided the various members of the Federal Reserve on when they will start reducing their asset purchases. President Powell made a clear distinction between the timeframe to initiate the reduction and the take-off of interest rate normalizations, saying the Federal Reserve has a different set of criteria for these two components of its extremely accommodative current monetary policy.

According to MarketWatch, about half of the 18 senior Federal Reserve officials are in favor of a cut “sooner or later.” However, “the other half of Fed management has said they would like to see more labor market data before the cut-off point is reached. They believe it is still important to support demand in the coming months as the economy recovers from the coronavirus. “

It puts President Powell between a rock and a hard place in satisfying both the most hawkish and conciliatory senior officials of the Federal Reserve. Even major analysts are divided over what they think the Fed will announce next week regarding any direction towards the start of tapering. The only certainty that we know will emerge from next week’s FOMC meeting is an updated ‘dot chart’, which will for the first time include projected interest rates for 2024.

This will undoubtedly be one of the most critical FOMC meetings this year, as it will give market participants a real glimpse further back in time than ever before.

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Wishing you, as always, good exchanges and good health,