Gold Higher But Choppy After Fed
Peter Grant | Dec 18, 2014 01:41PM ET
Gold rallied along with stocks and the dollar overseas, reaching an intraday high of 1213.86. However, the gains could not be sustained and the yellow metal dropped back below $1200.
The SNB announced today that they would impose a negative deposit rate of 0.25% as a means to discourage safe haven inflows into the Swiss franc and defend the 1.20 cap against the euro. Interestingly, the new deposit rate goes into effect on 22-Jan, which happens to be the date of the next ECB meeting. Could this be the SNB getting out in front of — rather than reacting to — the ECB announcing full-on BoJ/Fed/BoE-style QE?
As for our own central bank: An inordinate amount of time and energy was spent speculating on the ramifications of the inclusion/exclusion of two words in the latest policy statement. Those two words are of course “considerable time.”
Everyone gets to claim they were right!
“Considerable time” remains, but it’s in a slightly different spot, and is now reinforced by the word “patient”. Basically, nothing has changed and they tell you that when they say that the new guidance is “consistent” with the old guidance. Chair Yellen went further during her press conference, saying that the new wording “does not represent a change in our policy intentions.” So, what was the point then?
All-in-all, Fed policy remains quite dovish, as evidenced by the dissent of two hawks and a dove who saw it as not dovish enough. The stock market’s reaction is a pretty strong clue as well. As an added bonus, the Fed watchers got a 50% increase in the words they can debate to death ahead of the next FOMC meeting in late-January.
To sum up, The SNB is going negative in anticipation of the ECB buying sovereign bonds. The Fed will be “patient” for a “considerable time” before they consider hiking rates.
The BoJ? Well, they’ve gone all-in (and then some) in their efforts to wreck the yen. In light of the recent affirmation of Abe’s coalition, he seems to think he has some sort of mandate to debase the yen with abandon. You can be all-but assured he wont squander the opportunity.
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But when might we see monetary policy normalization? I’m afraid the current state IS the new normal. After all, Japan is the ZIRP/QE standard-barer and they’ve been stuck in this trap for more than twenty-years.
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