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The Fed's patience end can put the gold under more pressure

Discussion in 'Current Market Sentiments' started by fx-recommends, Mar 18, 2015.

  1. fx-recommends

    fx-recommends Content Contributor

    Aug 6, 2008
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    The gold has resided for trading near 1150 per ounce waiting to know an end of the Fed's patience, after it came under increasing down side pressure following the release of US Feb labor report.
    The yields of the US treasuries could be boosted following that figure which raised the roof of the interest rate outlook this year lowering the attractiveness of the gold which can suffer further with raising rates in US.
    however the falling of the inflation upside risks in US is still forming a block in front of the Fed capping it from raising the interest rate for the first time since 2006.
    PCE which is the favorite Fed's gauge of the inflation has increased merely by 0.2% year on year in January, while the Fed's target is 2%, as a result of the continued slide of the energy prices with greenback appreciation in the recent 9 months.
    So, taking a decision to hike the interest rate now in US can send this gauge to the negative territory raising the threat of deflation again, while the growth pace in US is easing down.
    From another side and despite the continued improvement of the US labor market, the wage inflation pressure is still tame, while the industrial activity was slowing down in the recent few months with weaker than expected consuming performance, despite the greenback appreciation which raise the confidence in spending.
    So, the Fed can maintain its patience stance waiting for rising of the economic activity can raise the inflation expectation and can endure further greenback appreciation can be resulted from a decision to raise the interest rate.
    The Fed has highlighted in its recent meeting its appreciation of the inflation downside risks which is mainly due to the energy prices slide which is still on until now.
    So, even if there is to be a decision this year for raising rates in US, this is required to be with better inflation outlook with inflation level not near the zero level as what we are currently.
    Hiking the interest rate in US can be also by a gradual pace taking use of the low inflation level which can be a reserve to the Fed for having a leeway for pausing time in the future without continued hiking to give the economy any needed period for support with no worries about the inflation.
    After 18 meetings of saying that it will keep the interest rate at the current exceptional low level for considerable period of time, The Fed has decided last December to replace that sentence by being patience before having normalized monetary policy and the Fed's chief Yellen has come out to figure out saying that is meaning that there is no hiking yet in the next 2 meeting.
    In her testimony before the senate banking committee, she has underscored that there will be omitting of this patience figure for providing forward guidance before hiking but she has not said when that to happen.
    while the odds rose recently for hiking, as the recent time the Fed has told that it is patient was in the beginning of 2004 before entering a cycle of raising rates in June 2004.

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    FX Market Strategist
    Walid Salah El Din
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