Watch Service’ Dennis Lockhart, president of the Atlanta Fed, said that despite pressures from overseas, they thought the economy would keep performing at a solid enough pace to justify a rate hike at one of the Fed’s final two meetings of the year.
The metal traditionally moves in the opposite direction to the dollar and US Treasuries, both of which are driven by interest rates, but the mood has shifted a little and this week’s gains have come in spite of little or no pick up in physical demand, especially in India where festival season so far has been muted. Consumer spending has been rising solidly of late, likely a reflection of the boost to purchasing power from the lower oil prices as well as the ongoing job gains and a wealth-to-income ratio that remains high even after the recent declines in the stock market.
Reports from India suggest gold is trading at discounts of between US$7-8 to the spot price, while premiums in China are also dropping.
“Have we seen enough information between September and October to convince us to do in October what we didn’t do in September?” “Generally, higher interest rates are not a good environment for gold”.
Lockhart noted that the Fed will have much more economic data available in December to help make a decision.
“However the data are giving off varied signals, and there is more ambiguity in the current moment than a few weeks ago”, he added at a Society of American Business Editors and Writers conference.
Still, he said, “I continue to feel that cumulative progress is consistent with liftoff relatively soon”.
Equity analysts are not of the same view on the impact of Fed rate hike on foreign inflows to India given the complexities of the world economy and their co-relation with Indian economy. Lockhart, Dudley and Evans all voted with the majority. There may well have been more comments on foreign economic developments in recent FOMC statements than was common in the past.
At the Federal Open Market Committee’s meeting in September, “most participants, myself included, anticipated that achieving these conditions would entail an initial increase in the federal funds rate later this year”, Fischer said Sunday in Lima, where he is attending the annual meeting of the global Monetary Fund. The restraint on net exports stemming from the appreciation of the dollar over the past year, and from global developments more generally, may be a negative influence on GDP growth for somewhat longer, but that restraint is likely to continue to be outweighed by the other sources of growth. But Fed officials, including Chair Janet Yellen, have stressed that the rate increases will likely be very gradual, meaning that rates would still remain near historic lows for a while.
