A Delayed Reaction to the Statements of the Federal Reserve, the European Central Bank and the Bank of England Takes Gold above $1800

“Come writers and critics who prophesize with your pen, and keep your eyes wide, the chance won’t come again, and don’t speak too soon, For the wheel’s still in spin”
The Times They Are A-Changin’ — Bob Dylan

Beginning on Thursday, October 28, when the European Central Bank held a press conference following their meeting that took place a few days earlier, which was followed by statements by both the Federal Reserve and the Bank of England this week unveiled a unified consensus in regards to their current monetary policies.

On Wednesday, November 3, ECB President Christine Lagarde said, “In our forward guidance on interest rates, we have clearly articulated the three conditions that need to be satisfied before rates will start to rise. Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year.”

In regards to the recent rise in yields, President Lagarde said that “An undue tightening of financing conditions is not desirable at a time when purchasing power is already being squeezed by higher energy and fuel bills, and it would represent an unwarranted headwind for the recovery,”

Like other leaders of major central banks, she underscored the current level of inflation and whether or not it is as they thought transitory she commented that, “Our assessment is that the current inflationary surge is mainly due to factors of a transitory nature, although these factors could show a higher degree of persistence than initially estimated, so that we expect to continue to see relatively high rates of inflation in the coming months.”

The Bank of England issued their latest monetary policy vis-à-vis the minutes of the Monetary Policy Committee meeting held on Tuesday, November 2. Their statement was in line with both the Federal Reserve and ECB which read, “the Committee judged that the existing stance of monetary policy remained appropriate. The MPC voted by a majority of 7-2 to maintain Bank Rate at 0.1%. Furthermore, the statement said, “The Committee voted by a majority of 6-3 for the Bank of England to continue with its existing programme of UK government bond purchases”.

Lastly, the Federal Reserve released the statement from the November FOMC meeting on Wednesday, November 3. In regards to their current Fed funds rate which determines interest rates throughout the United States, they said, “The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

All three major central banks came to the same conclusion in regards to inflationary pressures that continue to grow. Raising interest rates at this point in time would be detrimental to the economic recovery that is currently underway in Europe as well as the United States.

Oddly, even after the statement released by the European Central Bank, the Bank of England, and the Federal Reserve gold remained flat lower on Wednesday, November 3 when all three central banks had released their forward guidance indicating that none of the central banks would raise rates in attempts to curtail record levels of inflation.

It seems as though there was a delayed reaction beginning on Thursday, November 4 with gold futures opening on Thursday at $1770 and closing at $1792. On Friday, the U.S. Labor Department released its jobs report for the month of October, which revealed that 531,000 Americans were added to nonfarm payrolls and the unemployment rate dropped from 4.8% to 4.6%. Economists polled by Reuters forecasted that there would be a rise in nonfarm payroll jobs of 450,000. The November jobs report for October came in exceedingly above market forecasts, the first occurrence in which the analysts underestimated the recent growth of new jobs being filled in the last three months. Additionally, the Labor Department revised September’s numbers higher to show 312,000 new jobs were added in the previous month, which was initially reported as only 194,000.

However, the bullish market sentiment for gold due to the high inflation levels had a much more pronounced effect than the strong jobs report which resulted in gold opening at $1792 and closing at $1820. The exceedingly strong jobs report and the dramatic rise in gold pricing over the last two days indicates that traders and investors are much more focused upon the current level of inflation then on additional jobs being added in the United States.

For those who would like more information, simply use this link.

Wishing you, as always, good trading and good health,

Gary Wagner