Date; December 3, 2018
As Fed Rethinks Path for Rates, Gold’s Poised to Jump in 2019
Gold may be poised to rally as speculation mounts that the Federal Reserve will hit the pause button on interest rate hikes in 2019. After lift-off in late 2015 followed by a rise a year later, the central bank has since steadily raised benchmark rates and is widely expected to do so again this month. But the path after that is clouded after Chairman Jerome Powell said Wednesday rates are “just below” estimates of the so-called neutral level, which markets took to mean a softer stance than previous comments. It was “getting pretty obvious that at some point Powell would have to flinch,” said Trey Reik, senior money manager at the U.S. unit of Sprott Inc., which oversees $7.6 billion. “Once you get to the consensus view that the Fed may be done, the dollar may come under severe pressure. Gold will erupt.” While bullion was weighed down in the second and third quarters by a stronger dollar and rising borrowing costs, the dynamic may now be shifting as doubts build over the Fed’s tightening path in 2019. Drivers that favor further gains in bullion include a steady build-up in exchange-traded fund holdings as well as votes of confidence from top banks. Goldman Sachs Group Inc. recommends an outright long gold position into next year. “If U.S. growth slows down next year, as expected, gold would benefit from higher demand,” analysts including Jeffrey Currie said in a Nov. 26 note that endorsed bullion as one of its top-10 trade ideas for commodities. “The market has already priced in 10 out of the 12 rate hikes that we expect.” Last week, futures capped the first back-to-back monthly gain since January. That uptick followed two quarters of declines through to September, with prices hitting a 19-month low in August. So far this year, bullion’s still down more than 5 percent, trading at about $1,236 an ounce on Monday. On Wednesday, Powell offered few explicit clues on how many hikes will be necessary in 2019, but repeated his view that the Fed will have to be especially responsive to the data. Minutes the next day, which covered the Fed’s last meeting, signaled policy makers will adopt a more flexible approach in 2019.
Euro Area Sparks Poland’s First Manufacturing Dip in Four Years
Weaker growth in the euro region is seeping through to its neighbors. While eastern Europe’s expansion has so far defied forecasts for a slowdown, its biggest economy — Poland — registered a first manufacturing contraction since 2014 last month. Purchasing managers’ indexes in the Czech Republic and Hungary were better, but a mild economic dip may finally be materializing. “November’s PMIs suggest that central European industrial production growth will weaken markedly in the final months of 2018,” Liam Carson, an emerging Europe analyst at Capital Economics Ltd., said in a report. “Even so, with other sectors holding up well, that’s unlikely to result in a sharp slowdown in overall GDP growth in the fourth quarter. Poland’s PMI slipped to 49.5 in November from 50.4 in October and 54.2 a year ago as new export orders fell for the sixth time this year. It will probably remain below 50 in the coming months as economic growth gradually slows, according to Monika Kurtek, chief economist at Bank Pocztowy SA. While Jakub Rybacki, an economist at ING Bank Slaski SA, says the latest reading is reminiscent of the last time Poland faced recession, such a scenario isn’t likely this time around. One of the main reasons is the central bank, which has vowed to keep borrowing costs at a record low throughout 2019 and will limit any downturn.
Turkish Inflation Slows After 15-Year High on Tighter Policy
Turkish annual consumer inflation slowed last month from a 15-year high in October, driven by a deceleration across the consumer basket that suggests the central bank’s September interest rate hike is working its way through the economy. The consumer inflation rate dropped to 21.6 percent from 25.2 percent, while monthly prices dropped 1.44 percent, TurkStat said in a statement on its website. The median estimate in a Bloomberg survey of analysts was for an annual rate of 23 percent. Food price increases slowed to 25.7 percent from 29.3 percent the previous month, in a sign the central bank’s 29.5 percent year-end estimate might prove to be realistic. Food prices have so far been volatile and the seasonal slowdown usually seen during the summer months failed to materialize, pushing the overall inflation higher as the category accounts for nearly a quarter of the consumer inflation basket. Annual energy inflation slowed to 25.4 percent from 29.4 percent as oil prices fell by more than 20 percent during the month, resulting in retail price cuts for refined products. Monthly producer prices also fell, indicating that manufacturers and service providers might be undoing some of the earlier price rises as the lira recovers from an August low. The lira strengthened after the report and was trading 1 percent higher at 5.1629 per dollar at 10:59 a.m. in Istanbul