Gold was back on the defensive on Wednesday as some dovish rumblings have prompted a full retracement of Tuesday’s gains, and then some. However, price action remains confined to last week’s range. Early action on Thursday morning shows the gold market nearly unchanged.
BANK OF JAPAN
Interestingly the first hint of dovishness came from uber-hawk Haruhiko Kuroda who said the Bank of Japan (BoJ) has done what is “necessary” and “possible” for now. The yen firmed initially on his more measured tone, but the market quickly realized his words were not even remotely suggestive of any kind of policy shift.
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Having already pledged to double the monetary base over the next two-years, in what has been categorized as “the world’s most intense burst of monetary stimulus,” what else is possible at this point? The yen fell back to set new multi-year lows against the dollar, Sterling and Swiss franc, while remaining near its recent low against the euro. Gold set a new record high against the yen earlier in the day, before easing somewhat.
FOMC MINUTES
This morning, the Fed released the minutes of their March 19-20 FOMC meeting, which showed that there was once again considerable conversation about the effectiveness and duration of QE. The minutes were released early because they were inadvertently sent to Congressional staffers and trade groups yesterday.
JOBS DATA
Several FOMC members “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end.” This was obviously before the big March payrolls miss was revealed. While it remains to be seen if the March jobs report is reflective of a broader weakening in the labor market, I suspect those members advocating for the phased removal of accommodations have likely softened their position somewhat since mid-March.
DOLLAR STRENGTH?
If the Fed were really inclined to tighten, while its other major counterparts remain in easing mode, one would assume the Fed would have to be comfortable with a higher dollar. The dollar index is already up about 6% year-to-date, but I don’t actually think the Fed or Treasury are too keen on further appreciation.
The greenback firmed intraday on the heels of the FOMC minutes, but both Dennis Lockhart of the Atlanta Fed and Minneapolis Fed President Narayana Kocherlakota were quick to suggest that it’s premature to think a tapering of QE is imminent. In light of the massive new easing by the BoJ, along with chances for further BoE accommodations and heightened expectations for an ECB rate cut, I suspect that the Fed is not going to be tightening any time soon.
