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 onThursday, October 28, when the European Central Bank held a press conferencefollowing their meeting that took place a few days earlier, which was followedby statements by both the Federal Reserve and the Bank of England this weekunveiled a unified consensus in regards to their current monetary policies. Allthree major central banks committed to not raising interest rates and maintainingtheir collective extremely accommodative monetary policy.
On Wednesday,November 3, ECB President Christine Lagarde said, "In our forward guidance oninterest rates, we have clearly articulated the three conditions that need tobe satisfied before rates will start to rise. Despite the current inflationsurge, the outlook for inflation over the medium term remains subdued, and thusthese three conditions are very unlikely to be satisfied next year."
In regards tothe recent rise in yields, President Lagarde said that "An undue tightening offinancing conditions is not desirable at a time when purchasing power isalready being squeezed by higher energy and fuel bills, and it would representan unwarranted headwind for the recovery,"
Like otherleaders of major central banks, she underscored the current level of inflationand whether or not it is as they thought transitory she commented that, "Ourassessment is that the current inflationary surge is mainly due to factors of atransitory nature, although these factors could show a higher degree ofpersistence than initially estimated, so that we expect to continue to seerelatively high rates of inflation in the coming months."
The Bank ofEngland issued their latest monetary policy vis-? -vis the minutes of theMonetary Policy Committee meeting held on Tuesday, November 2. Their statementwas in line with both the Federal Reserve and ECB which read, "the Committeejudged that the existing stance of monetary policy remained appropriate. TheMPC voted by a majority of 7-2 to maintain Bank Rate at 0.1%. Furthermore, thestatement said, "The Committee voted by a majority of 6-3 for the Bank ofEngland to continue with its existing programme of UK government bond purchases".
Lastly, theFederal Reserve released the statement from the November FOMC meeting onWednesday, November 3. In regards to their current Fed funds rate whichdetermines interest rates throughout the United States, they said, "The Committee decided to keepthe target range for the federal funds rate at 0 to 1/4 percent and expects itwill be appropriate to maintain this target range until labor market conditionshave reached levels consistent with the Committee's assessments of maximumemployment and inflation has risen to 2 percent and is on track to moderatelyexceed 2 percent for some time."
All threemajor central banks came to the same conclusion in regards to inflationarypressures that continue to grow. Raising interest rates at this point in time wouldbe detrimental to the economic recovery that is currently underway in Europe aswell as the United States.
Oddly, evenafter the statement released by the European Central Bank, the Bank of England,and the Federal Reserve gold remained flat lower on Wednesday, November 3 whenall three central banks had released their forward guidance indicating thatnone of the central banks would raise rates in attempts to curtail recordlevels of inflation.
It seems asthough there was a delayed reaction beginning on Thursday, November 4 with goldfutures 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, whichrevealed that 531,000 Americans were added to nonfarm payrolls and theunemployment rate dropped from 4.8% to 4.6%. Economists polled by Reutersforecasted that there would be a rise in nonfarm payroll jobs of 450,000. TheNovember jobs report for October came in exceedingly above market forecasts,the first occurrence in which the analysts underestimated the recent growth ofnew jobs being filled in the last three months. Additionally, the LaborDepartment revised September's numbers higher to show 312,000 new jobs wereadded in the previous month, which was initially reported as only 194,000.
However, thebullish market sentiment for gold due to the high inflation levels had a muchmore pronounced effect than the strong jobs report which resulted in goldopening at $1792 and closing at $1820. The exceedingly strong jobs report andthe dramatic rise in gold pricing over the last two days indicates that tradersand investors are much more focused upon the current level of inflation then onadditional jobs being added in the United States.
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Wishingyou, as always, good trading and good health,
By Gary WagnerContributing tokitco.com
Follow @garyswagner
gary@thegoldforecast.comwww.thegoldforecast.com