Gold lost ground Wednesday after the minutes from the Federal Reserves April meeting showed some support among the central bankers for a potential interest-rate increase as soon as June.
Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the committees 2% objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June, the minutes said. Still, the Fed continued to emphasize its longstanding data-dependent outlook, which leaves policymakers plenty of room not to hike rates in June or later.
Rate-hike talk also dents stocks: The minutes follow hawkish statements from Fed branch chief Dennis Lockhart and John Williams on Tuesday, in which they declared the banks June meeting live, plus a Consumer Price Index report for April that showed inflation rising at its fastest pace in three years.
Rate-hike odds spiked after the minutes were released, and gold dipped about 1% to trade near $1,266. But U.S. stocks also were pressured, and arguably they have more to lose than bullion if the Fed acts in June. A rate hike could revive volatility in equities and result in new capital fleeing to gold as a safe haven, as occurred as the start of the year.
But odds are that the Fed wont move to raise rates because its June 14-15 meeting comes just days before the United Kingdom votes on a potential Brexit from the European Union a referendum that has the potential to rattle currency, bond, and stock markets across the globe.
U.S. Mint coin sales soaring: Regardless of what the Fed does at its upcoming meetings, the overall attitude toward gold remains positive. Just look at the U.S. Mints bustling bullion sales. According to a recent Coin World report, gold coin sales are well ahead of 2015 levels, with 1-oz. gold American Eagles double 2015s totals at the same time last year.
Through May 16, about 381,500 ounces of gold Eagles were sold, versus 197,500 ounces during the first full five months of 2015. Gold American Buffalo coin sales this year also are beating last years totals, with 89,500 sold versus 75,500. And silver American Eagle coins are maintaining their record-breaking pace, with 21.576 million sold through May 16.
Very, very bullish trend for gold: And this week another top JPMorgan executive pronounced blue skies ahead for the yellow metal in a CNBC interview, following Solita Marcellis appearance earlier this month in which she predicted $1,400 gold.
JPMorgan Asset Managements global chief investment officer and head of fixed-income and commodities, Bob Michele, doesnt think the Feds rate-hiking pace this year will be aggressive to golds benefit. If the Fed marches on its path [from] a zero real fed funds rate to something like 2%, obviously thats going to put a lot of pressure on gold, he said. However, I dont think theyre going to get there. I think theyll struggle to do one more hike this year, and I think that again will unleash the gold bugs into the market.
Therefore, Its certainly a time that people want to get into gold, he said. I think theres no doubt that central-bank policy response has unleashed the gold bugs. One of the big knocks on gold for a long time had been that it had no yield. Well, if youre in Europe, if youre in Japan, no yield is high yield. You throw on top of that, there is a currency-devaluation war under way; its in Europe, its in Japan. You toss into the mix China and Australia, and suddenly gold is an alternate currency, certainly to paper money. So I think the intermediate and longer-term trend for gold is very, very bullish.
Surprising how resilient gold has been: For Michele, golds recent dip from $1,300 is no big deal. Theres no doubt when you look at spec positions, theyre at 10-year highs. You need some sort of consolidation here, he said. When I look at the charts, I could see a pullback to the $1,200 level, maybe $1,204, but Ill tell you: All the interest that I see circling around gold, Im not so sure well get there.
Asked whether more quantitative easing by foreign central banks might boost the dollar at bullions expense, he said, I think the buyers will come in anyway. I think that when you look at gold, its surprising how resilient its been. Its done well on days when theres been dollar strength, when theres been dollar weakness, on risk-on, risk-off. I think that theres a lot of value in gold here and I think that its under-owned. So Ive been surprised myself at the widespread interest.