The Fed Grows Concerned - Should Gold Investors Do The Same?

The Fed released the minutes from its last meeting yesterday. What can we learn from the new light they shine on the U.S. monetary policy? How will it affect the gold market?

Minutes Show That FOMC Members Are More Worried Now

The minutes from the Sep FOMC meeting show that the Fed is more worried about the economy. The Committee members noted that downside risks had become more pronounced due to the increased trade conflicts, more intensified geopolitical uncertainty, and more fragile prospects for global and domestic economic growth:

Participants generally judged that downside risks to the outlook for economic activity had increased somewhat since their July meeting, particularly those stemming from trade policy uncertainty and conditions abroad. In addition, although readings on the labor market and the overall economy continued to be strong, a clearer picture of protracted weakness in investment spending, manufacturing production, and exports had emerged. Participants also noted that there continued to be a significant probability of a no-deal Brexit and that geopolitical tensions had increased in Hong Kong and the Middle East. Several participants commented that, in the wake of this increase in downside risk, the weakness in business spending, manufacturing, and exports could give rise to slower hiring, a development that would likely weigh on consumption and the overall economic outlook.

Moreover, the participants also expressed their concerns about something we have been writing about for months, i.e., the inverted yield curve and increased odds of recession in the near future:

Several participants noted that statistical models designed to gauge the probability of recession, including those based on information from the yield curve, suggested that the likelihood of a recession occurring over the medium term had increased notably in recent months.

Implications for Gold

What does it all imply for the gold market? Well, the latest FOMC minutes show that the Fed's assessment of balance of risk became bleaker. The recent downturn in manufacturing can only strengthen the pessimistic stance of the FOMC. Plus, Trump has just introduced travel bans on Chinese officials and trade bans on certain China companies - and that doesn't bode well for a swift, lasting and comprehensive trade disputes resolution. And the odds of the no-Brexit deal have increased.

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