The gold market is moving slightly higher in early action Tuesday following a late-Monday meeting between President Trump and Fed Chairman Jerome Powell. The meeting could potentially have major implications for gold and other markets as the Fed attempts to steer monetary policy in the months ahead.
President Trump invited Fed Chief Jerome Powell and Vice Chair Richard Clarida for dinner on Monday evening. Treasury Secretary Steve Mnuchin was also in attendance. According to bloomberg.com, the meeting was set up to discuss the economy’s performance and outlook.
A meeting between the President and Fed Chair is rare, although not unheard of. This meeting comes not long after Powell faced sharp criticism from Trump following the central bank’s decision to raise rates. Trump had reportedly become so frustrated with the Fed that he may have even considered firing Powell as Fed Chair.
The Fed has always looked to maintain its independence, and some have suggested that Trump’s open criticism of the institution was a direct threat to that independence. The President’s comments broke with a decades-long tradition of the White House avoiding involvement in the central bank’s decision-making process. The tug-of-war almost certainly played a role in December’s steep stock market declines and volatility.
According to foxbusiness.com, the steak dinner lasted about an hour-and-a-half. The meeting may have provided a good opportunity for Trump and Powell to attempt to mend fences, but it reportedly did not delve into further Fed policy decisions. The article also stated “Powell said that he and his colleagues on the FOMC will set monetary policy in order to support maximum employment and stable prices and will make those decisions based solely on careful, objective and non-political analysis.”
The Fed Flip-Flop
The Fed has recently reversed course on previous policy intentions. Just a few months back, Powell had suggested that rates had a way to go before entering “neutral” territory in which they are neither accommodating nor restrictive. Not long after that, Powell suggested that rates were in fact closer to neutral than previously thought. The central bank did then follow-through with plans for another 25 basis-point hike in December.
The Fed had originally planned for another three rate hikes this year. The central bank has begun to sing a very different tune lately, however. After cutting that forecast to two hikes for 2019, the Fed has now suggested that it is on hold. Not only will the Fed hold-off on further hikes-for now anyway-it will also put a halt to its balance sheet contraction, or QT.
Last week’s FOMC meeting announcement and subsequent commentary blew the lid off even the most dovish expectations. The Fed even went as far as suggesting that it could potentially need to start cutting rates again this year.
Stock investors took the Fed’s dovish stance in stride and equities again appear to be on solid footing. The commentary weighed on the dollar index, however, and could potentially set the stage for further declines in the greenback.
The gold market also got a boost from the Fed and has continued moving to the upside after clearing key resistance. The market made a recent high over $1,320 per-ounce but has since pulled back a bit. The recent pullback may be a positive development and could lay the groundwork for a more sustainable march higher.
In early action today, gold is trading slightly lower, with spot prices down $1.87/oz at $1,315.03. Any further indications of dovish changes in monetary policy could fuel further upside. Corresponding dollar weakness may also attract buying interest. The market remains in a medium-term uptrend and any significant dips will likely be bought until proven otherwise.