Gold Trades Sideways in Anticipation of FOMC Meeting

The moderate slippage in the precious metal's bid prices is an indicator of the table-setting happening in the commodities market ahead of Wednesday's Fed, a state of play that is unlikely to survive past Tuesday's CPI inflation data. US stock markets appear to be betting much more heavily on a Fed pause and all the surety of easier monetary policy to follow, with the S&P 500 aiming for its higher close in a calendar year.

Tuesday, June 13 at 8:30 am EDT // Consumer Price Index (May)

[(core CPI) consensus est.: +5.3% YoY // prev.: +5.5%]

[(headline CPI) consensus est.: +4.1% YoY // prev.: +4.9%]

Heading into a big week for Fed policy (in)action and investors' projections for the future of the same, it seems more likely than not that Tuesday's updated data set on US consumer inflation is going to be another event in which it's tough to see a positive signal for the gold market. If the headline and/or core CPI numbers decline modestly (as expected,) although it would certainly not be a signal that the Fed's tightening of the US economy in order to tamp down inflation is an unmitigated success, it would still generally be an argument for it to continue (a negative for gold.) Any steeper-than-expected drop in inflation pressure would be an amplified version of the same. The potential "upside risk" for the yellow metal would be an unexpected spike in the CPI numbers, which is not outside the realm of possibility, but based on current indicators, is the least likely of the three outcomes. The news is rosier for US stocks, which would likely see a boost on the news of lightening inflation which would override any investor concern (temporarily, at least) about the Fed tightening continuing.

Wednesday, June 14 at 2 pm EDT // FOMC Interest Rate Decision

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[The FOMC is not expected to announce any change to key interest rates.]

Between the announcement of the FOMC's policy decision(s), the release of the Fed's quarterly economic projections for the US economy, and Chairman Powell's post-decisions Q&A press conference, there will be a great deal of important input for markets on Wednesday afternoon; but, far and away, what will drive trading in assets like gold and US equities (largely via US Dollar-sensitivity) is the reveal of the Fed's decisions to pause rate hikes, or not. Here, while it doesn't quite feel like a lock, the consensus seems to have settled on the assumption that there will be no interest rate hike for the first time in over a year. To some extent, this should already be priced into both gold markets and equity prices ahead of time, but we don't expect that to prevent a burst of volatility when the news hits the transom, with gold prices likely climbing towards $2000/oz while stock markets cheer as well. How quickly or seriously investors digest the rest of the day's Fed news will determine how aggressive or long-lasting these rallies turn out to be. Economists expect the SEP indicators to still project at least one more hike in 2023 and zero cuts before 2024. This news will apply some counterweight to the market's reaction to "no hike," and, especially in the case of an outsized market reaction to the initial Fed statement, Powell may spend a lot of breath in the presser trying to lower expectations that "no hike" directly implies "cuts next."

Thursday, June 15 at 8:30 am EDT // Retail Sales (May)

[consensus est.: +0.1% MoM // prev.: +0.4%]

Monthly Retails Sales data, as a direct indicator of the "health" of the US consumer in this higher-rate, tighter-policy environment, has tended to pull market focus, especially over the last six months. This time around, however, we expect it to be overshadowed by the continued trading around Tuesday's inflation data and, above all, Wednesday's FOMC decision. Inverse to the preceding CPI numbers, Retails Sales growth above projections likely weighs on gold prices (while US stocks would find more of a tailwind,) while a miss— say, month-over-month contraction— would offer more support to the yellow metal as a non-USD save haven.

And that's how the week lays out ahead of us, traders. As always, I wish you all the very best of luck in your markets in the coming days, and I'll look forward to seeing you all back here next week.