The Fed Cannot Fix Indecision Trap, Gold Price To Push Higher - Murenbeeld & Co
(Kitco News) - The gold market could be getting a little bit ahead of itself as one market analysts expects that the Federal Reserve will talk down a July rate cut following next week’s much anticipated monetary policy meeting.
Chantelle Schieven, head of research at Murenbeeld & Co.
Chantelle Schieven, head of research at Murenbeeld & Co., said even after Friday’s dismal employment data that showed only 75,000 jobs were created in May, the U.S. economy is still not in bad enough shape to justify a rate cut next month.
“The economy is not tremendously strong, but it’s also not that bad,” she said. “I just feel that a rate cut in July would send the wrong message.”
Her comments come as markets price in a nearly 80% chance of looser monetary policy in July. Expectations rose sharply after Friday’s disappointing employment report. Last week, because of interest rate cut expectations, gold saw its best performance in more than a year. While off its recent highs, gold is still holding on to most of its gains. August gold futures last traded at $1,331.70 an ounce, up 0.18% on the day.
Schieven said that it’s more likely that the Federal Reserve will try to manage market expectations and push potential rate cuts closer to the end of the year. Although gold prices could pare back some of its recent gains on a potential shift in interest rate expectations, Schieven said that they still remain optimistic on gold as economic uncertainty continues to create a positive environment for the yellow metal.
“We think the current market environment needs more support than just monetary policy,’ she said. “Will a cut in interest rates really reignite the U.S. economy where there no political stability?”
The Canadian research firm continues to expect that gold prices would end the year higher from current levels as the U.S. government reduces its political rhetoric and instead focus on promoting growth by talking down the U.S. dollar.
Schieven said that President Donald Trump’s policy to govern through social media is what is slowing down the U.S. economy.
“Right now companies can’t make any decisions because they don’t know what the government is going to do next,” she said. “We are not forecasting a recession but this indecision will send the U.S. economy into a stall.”
This indecision trap, Schieven said will provide solid support around $1,300 an ounce. She added that with the Fed on hold until the end of the year it will be up to the U.S. government to provide needed support for the economy, which means an adjustment current trade policies and bearish statements on the U.S. dollar.
“We expect that Trump will eventually realize the tariffs aren’t working and will go back to focusing on the U.S. dollar,” she said.