Market Overview: Gold is posting some solid gains in early trade today as investors continue to digest the most recent FOMC meeting commentary. Following some very weak GDP data released this morning, it would seem that the Fed may be more unlikely to raise rates at their next meeting in September. This notion is driving gold while the dollar index is being punished heavily. Gold appears poised for a potential run at previous highs, and the bulls may be setting their sites on the $1400 per ounce level.
Key Data Points: Second quarter GDP released this morning was well below expectations, and will almost certainly fuel further debate on the timing of another rate hike by the Fed. Q2 GDP came in at 1.2 percent year over year, while consensus estimates were looking for a rise of 2.6 percent.In recent weeks, there had been some hope that GDP might approach the three percent level, but those hopes faded rapidly following some weakness in Durable Goods Orders and other economic indicators. While the Fed sounded more upbeat on economic conditions following their meeting this week, today’s report is a huge disappointment.
The highly anticipated Bank of Japan meeting today resulted in disappointment for investors. While the BOJ took some further steps in monetary policy, it did not apparently deliver the shock and awe type of plans markets may have been looking for. Further easing, however, by the BOJ may be in the cards, but for the time being the bank has elected to avoid cutting rates further into negative territory.
Outside Markets: Stocks are modestly higher in early trade today and may continue higher on the notion of rates remaining at current levels for longer than expected. While this may fuel some appetite for risk, investors could also potentially begin to get more nervous about the economy. For now, the path of least resistance in stocks remains higher.
Crude oil is trading slightly higher today, but continues to remain on the defensive. The bounce being seen in oil today may simply be attributed to dollar weakness.
The dollar index is being punished severely today following the disappointing GDP data. With today’s decline, the greenback may be headed back to its previous trading range and further weakness may potentially be seen. This could be a strong catalyst for higher gold and commodity prices.
The Big Picture: The economy continues to face some significant headwinds, and these issues could potentially keep the Fed on hold until December or even next year. While equities may continue higher in the meantime, gold and silver may also move higher on some increasing risk aversion and dollar weakness. Investors searching for yield likely consider stocks the only game in town for the time being, and higher prices may be seen until rates begin to climb.
