All eyes on the Fed today as they release the minutes from the January 31–February 1 meeting at 2 pm today.
Since the meeting, the usual “unnecessary” comments were shared by different Fed Presidents that a rate hike should happen sooner rather than later. Chairwoman Janet Yellen said last week that the Fed would consider rate hikes at upcoming meetings. Nonetheless, the odds of a rate hike at the next Fed meeting in March according to the CME FED WATCH TOOL today, before the minutes are released, is only at 18 percent.
Looking ahead, if they don’t raise rates in March, the chance of a 25 basis rate hike jumps to 40 percent at the May meeting and a 46 percent chance at the June meeting.
Hardly convincing numbers that a rate hike is imminent.
Some of the Wall Street gold traders I spoke with this morning are comfortable holding on to their long positions in gold as most believe higher prices are in the cards, but they believe it will be slow going. One trader said, “I’m long from the $1,220 area and the only thing to derail my position will be a surprise rate hike at the March Fed meeting. Otherwise I’ll just sit back and wait and see how it goes.”
I think the more important agenda for the Fed participants should be how and when do we start reducing the Fed’s balance sheet. If the Fed group believes the economy is on the path to a strong recovery, then raising interest rates and reducing the balance sheet should be a top priority. Just 8 years ago, during the financial times we’d like to forget, the Fed bought a huge amount of mortgage backed securities and Treasury Bonds to reduce long term interest rates, but I still want to see convincing economic data before I can cheer them on.
On another note, the Gold and Silver ETFs saw small inflows overnight.
With the Dow, Nasdaq and S&P kind of steady to a little higher of late, all markets including our markets are searching for some news to drive the future direction in prices.
During the next couple of months, Gold investors need to watch the upcoming EU elections very closely. I expect the landscape to be quite different after the German, French and Dutch elections are decided. As I indicated in my previous comments, the next tsunami in the price of gold will come from over the pond with the possible breakup of the European community. If Germany or France has upsets like the U.S. election just experienced, another EU defector could be right around the corner. That could be the end of the European community as we know it and cause a very interesting currency crisis. One would believe if this happens, gold will be the recipient of monumental gains.
One thing is for sure, before this happens the powers that be will fight tooth and nail to derail any breakup, but even if they stay together with tissue paper, the threat will be great enough to support much higher gold prices in the future.
Back from a short break in sunny Florida I wish you all a wonderful Wednesday.
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