The Fed’s December meeting
The Federal Open Market Committee (or FOMC) will hold its last meeting for 2017 on December 12 and 13. According to the CME FedWatch tool, the probability of a rate hike at the Fed’s December meeting is 96%.
While some Fed officials have expressed concern over persistently low inflation, the minutes of the most recent Fed meeting show that interest rates should rise in December.
Jerome Powell, the newly nominated Fed chairman, told lawmakers at the end of November that the case for increasing interest rates at December’s meeting is strengthening. William Dudley, president of Federal Reserve Bank of New York, agrees with Powell with respect to the case for an interest rate hike.
Path going forward
While an interest rate hike at the Federal Reserve’s December meeting is almost certain, the Fed is projecting three rate hikes in 2018. According to the latest Reuters poll, economists also anticipate three rate hikes compared to the expectations of two hikes a few weeks ago.
However, the rate path going forward is not sacrosanct and would depend on data out of the US, especially its inflation data.
The Fed’s rate hike and gold
Because the market is already factoring in a rate hike in December 2017, a quarter-point hike might not impact gold prices too much. What will be interesting to watch in the meeting will be the Fed’s tone, which could give us a clue regarding future rate hikes.
Lower-than-expected rate hikes could benefit gold stocks (GDX) such as Coeur Mining (CDE), New Gold (NGD), Yamana Gold (AUY), and AngloGold Ashanti (AU). These stocks have seen negative returns year-to-date of 29.4%, 15.4%, 17.4%, and 17.6%, respectively.