The Federal Open Market Committee will be releasing minutes from the September meeting later today. Last month the Fed cut rates by 25 basis points for the second time this year. On Tuesday Fed Chair Jerome Powell had a presser and Q and A session. During the presser he told reporters that the Fed would start to grow its balance sheet again. He points to the issues in the overnight lending markets to justify this move. Powell’s comments about monetary easing helped propel stocks higher and gold lower.
Trade talks between China and The United States have not found any resolution. Tariffs have been imposed on both sides and there are reports that the White House is discussing blocking government pensions from investing in China and limiting stock indexes from including Chinese stocks. China released a statement that it would retaliate.
In September payroll employment increased by 136,000 and unemployment is at multi-decade lows, 3.5 percent.
ISM manufacturing data dropped to a 10-year low in September sending stocks lower and gold higher. Trade talks have made very little progress and the trade war is escalating. Trade talks and the slowing manufacturing industry seem to be the catalyst for the Fed’s dovish attitude. Following Powell’s comments Fed Funds Futures now shows an 80 percent chance of a rate cut in October and 50 percent chance of another rate cut in December.
The 1500 spot level has been a major resistance point for gold. Early Last week we traded down to 1460 spot, but manufacturing data and trade headlines brought us back above 1500 in less than two days. The FOMC minutes and Powell’s news conference will give us a good indication of the certainty of a rate cut for October. If Powell’s comments are dovish, we will see the probability of a rate cut go north of 90% and gold should catch a bid. Should the minutes and Powell’s comments appear hawkish gold will most likely sell off. Trade resolutions will likely send gold lower and vice versa. Traders will look for trade talk news and FOMC updates to cause the most movement in the market.