The Federal Open Market Committee (FOMC) meeting statement and Chairman's press conference is scheduled for tomorrow afternoon beginning at 2pm EST. To be sure, the FOMC is expected to announce the beginning of a 'taper' of asset purchases by slowing its purchases at a rate of $15 billion per month. The keys to the FOMC statement and Powell's press conference comments will be to gauge the flexibility of the taper, and how quickly the Fed may be willing to start the rate hiking cycle.
While most of the world is in complete freak-out mode over rising inflation, the long end of the Treasury yield-curve has remained remarkably placid in recent weeks.
A 1.55% yield on the 10-year US Treasury Note is hardly indicative of surging inflation, or God forbid, hyper-inflation. The slight 'inversion' at the long end of the curve with the 20-year yield above the 30-year also highlights the market's skepticism over long-term economic growth and inflation expectations.
Anyone living in the real world has felt the strong gusts of rising inflation in the last year, however, the Fed has until recently continued to emphasize that it expects inflation to 'normalize' within its 2.0%-2.5% target range by mid-2022. It will be interesting to see if the Fed continues to reiterate that it expects inflation to be 'transitory', or if it now expects higher than desired inflation to remain with us throughout 2022 - in the latter case it could mean that the Fed will have to tighten monetary policy in an accelerated fashion in order to attempt to reign in some price pressures across the economy.
Gold has spent much of the last four months trading in a roughly $50 range between $1765 and $1815 - the options market does not expect gold to break free from this range this week. However, one has to wonder how long gold can remain range-bound before so much energy has been built up that the dam has to break.
Gold (Weekly)
By "dam breaking" I mean a large directional move, not necessarily a downside resolution. Gold in US dollar terms has been trading in an increasingly tight range focused around $1800, and with declining correlations to Treasury yields and the US Dollar Index.
It's hard to imagine what the Fed could say that would actually catalyze an upside breakout in gold tomorrow, but it would also probably require a much more hawkish than expected statement from the Fed to cause gold to tumble below its recent range. So take this as me saying that I am expecting gold to stay range-bound even though seasonality is favorable and the current sentiment backdrop is skeptical enough that a surprise rally would not be an unusual outcome.
Perhaps the best reason to own gold today is that it stands true as a real, time-tested store of value in a world that is becoming increasingly 'un-real'. Regardless of what JPow says tomorrow we know the Fed has a virtually impossible task of trying to create maximum employment while keeping inflation relatively stable ('stable prices'). Odds are that this task is about as easy to accomplish as trying to land a Boeing 747 on a dirt airstrip, a lot can go wrong and when it does gold is probably a pretty good asset to own.
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