Last week, the highly anticipated Federal Reserve symposium from Jackson Hole, Wyoming, drove a large degree of volatility in gold and other markets on Friday. Investors had patiently awaited remarks from Fed Chairwoman Janet Yellen and other Fed officials looking for further clarity on the timing and pace of additional interest rate hikes.
Did the Fed deliver?
Yes and no…
It seems to be apparent that Janet Yellen is signaling another rate hike is on the way, but she provided no specific timetable as to when the next hike may take place.
Ms. Yellen stated: “I believe the case for an increase in the federal funds rate has strengthened in recent months.” Ms. Yellen also said that she believes the central bank is close to meeting its targets on full employment and price stability, and she described consumer spending as “solid.”
Other Fed officials also chimed in, with Atlanta Fed President Dennis Lockhart stating on Bloomberg television that the central bank could potentially hike rates not once but twice this year.
On the other hand, St. Louis Fed President James Bullard is sticking with his forecast of just a single rate hike over the next 2.5 years.
The bottom line is the symposium will still leave the topic open for at least some debate. Perhaps this is simply a shot across the bow before the Fed does take action. Or perhaps the central bank is looking to maintain credibility by leaving the door very much wide open for a rate hike this year-or even two.
Speculation over the possibility of a September or December hike will likely remain the focal point of investor attention in the coming weeks. Any large data points will be heavily scrutinized, with any significant misses in key data releases possibly giving the Fed more to think about before tightening again.
On the flip side, stronger than expected economic data could influence the hawkish camp, and the chances of a hike this year could potentially go up significantly.
Stocks sold off a bit in the aftermath, while gold and silver ended the session higher but far from the day’s highs. Treasuries saw some decent selling come into the market, while the dollar index rallied sharply.
We believe that the fact that gold and silver did not see heavy selling is a very bullish sign. While the Fed alluded to a hike coming sometime in the near future, investors do not appear to be completely convinced. In addition, the reality is that even if the central bank does raise rates, the pace of any further hikes is likely to be extremely slow and incremental, and we do not foresee rates approaching levels that could dissuade gold buyers.
The gold market may face a critical test in the coming sessions. While the market has largely moved sideways for some time now, the bulls need to get some upside momentum going to keep buyers interested. The market remains vulnerable to a larger sell-off if no upside traction is seen, with the $1300 per ounce level potentially providing support.
With so many global economic issues still present, and with rates likely to stay low for an extended period of time, in our opinion any dips in gold may be viewed as long-term buying opportunities.