Daily Nugget: Gold Price Quivering Ahead Of Yellen

Yesterday gold prices closed at their lowest level since early October as speculators continued to worry about tapering and Yellen’s testimony tomorrow.

In contrast the platinum price made gains following reports of an increase in the global supply deficit this year.

Will dovish Yellen disappoint?

The gold price remains under pressure ahead of Yellen’s testimony tomorrow. We have hardly heard from Yellen since her nomination was announced, particularly when it comes to her views on monetary policy. General consensus is that she is a dove, any hints that she is less dovish than expected could prove a threat to the gold price in the short-term. Markets will be looking to see how (if at all) she has changed her views on monetary policy given recent data releases.

Presidents on tinkering and tapering

Yesterday three Fed Presidents discussed future FOMC policy and of course the thing everyone wanted to hear about was tapering.

As we predicted yesterday Minneapolis Fed President Narayana Kocherlakota told the St. Paul Chamber of Commerce that tapering asset purchases would hinder the “already slow rate of progress” in the economy’s recovery and despite concerns about bubbles the Fed should do “whatever it takes”.

Kocherlakota’s comments were echoed by Atlanta Fed President Dennis Lockhart who said the Fed’s policy should remain ‘very easy’. However, he did say that a reduction in the Fed’s QE program was still likely at the December meeting.

Non-voting FOMC member and resident hawk, Richard Fisher however warned financial markets that they should be prepared for tapering. He did acknowledge that the unemployment target remains some way off and therefore tapering is less likely.

Inflation Report

Here in the UK, commentators are digesting the Bank of England’s quarterly Inflation Report in which there were few surprises.

Prior to the release of the Inflation Report, the Office for National Statistics announced the unemployment rate had fallen, a key statistic since it was linked to forward guidance. Previously the Bank of England had stated that they believed unemployment would fall to its 7pc target by 2016, however this was revised in today’s report to Q3 2015. On news that the central bank had brought its forecast for unemployment closer the pound spiked, briefly touching $1.60.

In regard to hiking up the base rate, neither the Inflation Report nor Mr Carney gave any indication when that may be. Many believe that once the unemployment rate hits 7pc the MPC will feel comfortable to increase rates, however Carney told journalists today that he could foresee a scenario whereby unemployment were to fall to below 7pc but rates were kept low.

The Committee attributed the greater-than-expected fall in inflation from 2.9% in June to 2.2% in October to falling fuel prices. They did acknowledge an increase in some measures of household inflation but said these might be ‘temporary.’ The response on Twitter to the statement that CPI will be at 2% by next year suggested that many are quickly realising the stark contrast between what the bank like you to believe is inflation and what we really know is inflation.