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Gold Catches A Second Wind Following Dovish Federal Reserve Minutes

Kitco News

(Kitco News) - Backing up testimony from Federal Reserve Chairman, Jerome Powell, the U.S. central bank sees a strong case of a rate cut building, according to the minutes from the June Federal Open Market Committee (FOMC) meeting.

Although the U.S. central bank left interest rates unchanged following the meeting, the minutes showed support for looser monetary policy as economic risks weighed to the downside.

"Participants judged that uncertainties and downside risks surrounding the economic outlook had increased significantly over recent weeks," the minutes said. "Many participants noted that they viewed the risks to their growth and inflation projections, such as those emanating from greater uncertainty about trade, as shifting notably over recent weeks and that risks were now weighted to the downside."

Gold prices were already enjoying strong gains after Powell said, in day-one of testimony before Congress, that growing uncertainty is weighing on potential economic growth. Gold prices pushed well above $1,400 an ounce following his comments. The yellow metal has caught a second wind with prices trading just below session highs. August gold futures last traded at $1,416.60 an ounce, up 1.15% on the day.

While global market uncertainty and ongoing trade issues are well known factors impacting economic expectations. The Minutes noted that the central bank is also worried about fast approaching budget negotiations.

“Other downside risks cited by several participants included the possibility that federal budget negotiations could result in a sharp reduction in government spending or that negotiations to raise the federal debt limit could be prolonged,” the minutes said.

Although there is still uncertainty as to the timing and depth of interest rate cuts, the minutes clearly show that the Federal Reserve has an easing bias.

“With regard to the outlook for monetary policy beyond this meeting, nearly all participants had revised down their assessment of the appropriate path for the federal funds rate over the projection period in their SEP submissions, and some had marked down their estimates of the longer-run normal level of the funds rate as well,” the minutes said.

Market expectations have been fluctuating back and forth between a 50 basis-point cut or a 25 basis-point cut by the end of the month. The CME FedWatch Tool currently shows that markets see a nearly 30% chance of a 50-basis point move.

"The meeting minutes are consistent with the testimony theme from Chair Powell today," said Greg Michalowski, currency analyst at

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