Gold firmed in early U.S. trading on Wednesday and continued higher after the Fed announced policy. Nearly all of the losses from last Friday, inspired by the better than expected nonfarm payrolls report, have been recovered.
The Fed held steady on rates as was widely anticipated. The dot-plot suggests the Fed is on hold through next year. Fed Chair Powell said he would not consider raising rates until inflation picks up significantly.
I don't think Powell (or us for that matter) has anything to worry about when you consider the Fed has been trying to stoke inflation for a decade with little to show for it. In my opinion, it's far more likely that the Fed's next move is another rate cut.
There's plenty of smart analysts who believe the whole point of the rate hikes from December 2015 until December 2018 was to give the central bank room to cut when the economy inevitably slowed. They spent some of that ammo with three cuts this year amid trade war worries, leaving them just 150 bps above the zero bound.
With the Fed now out of the way, the focus is squarely on the December 15 deadline for the next round of U.S. tariffs against China. That may, in fact, be the primary reason that gold recovered today.
If history is our guide, you can almost bank on optimistic trade headlines over the next two sessions. However, it becomes a question of the believability of those headlines. At some point, like Peter and the wolf, trade negotiators are going to cry "deal" one too many times.
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