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November 2017 FOMC Meeting and Gold

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Yesterday, the Fed released its most recentmonetary policy statement . How can it affect the gold market?

In line with expectations, the Fed kept the federal funds rate target unchanged at between 1.00 and 1.25 percent:

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent.

The statement was little changed, but the U.S. central bank noted that economic activity has been rising at a solid rate despite hurricane-related disruptions. The Fed also pointed out that although the hurricanes boosted the overall inflation in September, the core inflation remained soft.

Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food and energy remained soft. On a 12-month basis, both inflation measures have declined this year and are running below 2 percent.

Although the Fed acknowledged soft inflation, the statement is rather neutral, as the U.S. central bank simultaneously upgraded the assessment about the economic growth from moderately to at a solid rate.

As one can see in the chart below, the price of gold initially rose after the release of the monetary statement, just to decline later and ultimately closed a day higher.

Chart 1: Gold prices over the last three days.

Gold prices over the last three days

The truth is that the meeting was a non-event, as nothing surprised investors (actually, little was expected). The Feds stance remained unchanged. The U.S. central bank is likely to hike interest rates in December. Thus, the gold prices may stay under pressure until the next FOMC meeting. However, with themarket odds of December hike at roughly 100 percent, the move is fully priced in and these expectations should not weigh on gold prices.

Now, all investors focus is on the prospects of the tax reform and the next Fed chair: president Trump is likely to announce a nomination today (Powell is highly expected to get this job, so his choice in opposition to other choices should not shake the markets). Fridays payrolls will also be closely watched, as there was a drop in September. Hence, there might be some volatility in the gold market today and tomorrow. Stay tuned!

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Thank you.

Arkadiusz Sieron, Ph.D.
Sunshine Profits Gold News Monitor and Market Overview Editor

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About the author

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of monetary inflation (Cantillon effects). Arkadiusz is a free market advocate who believes in the power of peaceful and voluntary cooperation of people. He is an economist and board member at the Polish Mises Institute think tank. He is also a Laureate of the 6th International Vernon Smith Prize. Arkadiusz is the author of Sunshine Profits’ monthly Market Overview report and daily Gold News Monitors, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes.

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