Gold has posted gains in the Wednesday session. In North American trade, the spot price for an ounce of gold is $1277.20, up 0.47% on the day. On the release front, ADP Nonfarm Payrolls surged to 235 thousand, crushing the estimate of 202 thousand. On the manufacturing front, ISM Manufacturing PMI slowed to 58.7, missing the forecast of 59.5 points. Today’s highlight is the FOMC rate statement, with no change expected in the benchmark interest rate. On Thursday, and the US will publish unemployment claims.
Will the Federal Reserve rate statement move gold prices? The Fed is widely expected to maintain the benchmark rate at 1.25%, but the statement could provide clues about future rate policy. The markets have priced in a December rate at 98.5%, which would mark a third rate for 2017. What can we expect in 2018? That depends to a large degree on the new chair of the Fed. Janet Yellen will wind up her 3-year term in February, and she is not expected to be reappointed by President Trump. The front runner is economist Jerome Powell, who is a proponent of much higher rates – his "Taylor Rule", which calls for higher rates when inflation is high or the labor market is at full capacity. Trump is expected to make his choice on Thursday, ahead of his trip to Asia.
The US consumer remains optimistic about the economy, and that confidence has translated into stronger spending. CB Consumer Confidence jumped to 125.9 points, and last week’s UoM Consumer Sentiment climbed to an all-time high of 100.7 points. Personal spending gained 1.0% in September, its sharpest gain since April 2016. The strong reading comes on the heels of Friday’s UoM Consumer Sentiment Report, which hit an all-time record in September. Consumer spending is a key driver of the economy, accounting for two-thirds of economic growth.
The Bank of England is expected to raise rates for the first time in a decade on Thursday. Bank policymakers are in a quandary with regard to rate policy. Inflation is running well above the Bank’s target of 2 percent, which has eroded consumer spending. As well, a labor market that is close to capacity is a reason in favor of raising rates. However, economic growth has slowed and there are fears that Brexit will take a toll on the British economy. The deadlock in the Brexit negotiations has done nothing to calm these concerns, as investors and the business community are becoming increasingly frustrated with the government’s lack of a coherent policy regarding Brexit. At the end of the day, a quarter-point rate hike should not have a huge effect on the economy, but the psychological significance of the move could boost the pound against other assets, including gold.
