Gold futures are edging higher on Monday but trading inside the previous session’s range as traders shift their focus on the Federal Reserve’s two-day meeting which culminates with the release of its monetary policy statement on November 3.
At 12:29 GMT, December Comex gold is trading $1790.30, up $6.40 or +0.36%.
Helping to limit gains is a stronger U.S. Dollar. The greenback bounced back on Friday from a prior day plunge after yields on government bonds rose and traders saw new inflation reports as challenging major central banks to pull back on asset purchases more quickly than planned.
U.S. Treasury yields also rose after the government’s index of core personal consumption expenditures – the Fed’s preferred inflation measure – climbed 0.2% in September, showing an increase of 3.6% over 12 months.
Fed Faces Several Challenges
Price and wage increases running at multi-decade highs may challenge Federal Reserve officials this week as they try to maintain a balance between ensuring inflation remains contained and giving the economy as much time as possible to restore the jobs lost since the pandemic, Reuters reported.
With investors already wagering the Fed will raise rates twice next year, a much sooner and faster pace than policymakers themselves have projected, economists at Goldman Sachs have become the latest to accelerate their rate hike call – moving it ahead a full year to July 2022.
By then, Goldman economist Jan Hatzius and others wrote that they expect inflation as measured by the closely monitored core personal consumption expenditures price index, still to be above 3% – a run of inflation not seen since the early 1990s and one well above the Fed’s 2% target.
Aspects of the job market, particularly the labor force participation rate, are unlikely to have recovered to pre-pandemic levels, and would seemingly still be short of the “maximum employment” the Fed has promised to restore before raising interest rates. But at that point, Goldman team wrote, Fed officials would “conclude that most if not all of the remaining weakness in labor force participation is structural or voluntary,” and proceed with rate hikes to be sure inflation remains controlled.
What to Expect from the Fed
The Fed meets this week and will issue a new policy statement on Wednesday at 18:00 GMT, with a press conference following at 18:30 GMT by Fed Chair Jerome Powell.
Officials are expected to approve plans for scaling back their current $120 billion in monthly bond purchases that would phase them out completely by the middle of next year – a first step away from the core policies put in place in early 2021 to battle the economic fallout from the pandemic.
According to the CME Group’s FedWatch tool, trading in federal fund futures contracts now implies a greater than 65% probability that the Fed will raise rates in June, right as the taper is expected to end, with a second increase expected in November.
A month ago, rates market indicators signaled less than a 20% likelihood of a rate hike as early June and a comparably negligible probability for two hikes next year.