Fed Leaves Interest Rate Unchanged

Gold’s Potential Remains High as Dollar Slumps

The two-day meeting of the U.S. Federal Reserve Policy Committee left the nation’s benchmark interest rate as-is but without the unanimity displayed in June. The committee’s statement cited job creation and economic growth in hinting a rate increase is not far down the road. Esther L. George of the Federal Reserve Bank of Kansas City, after giving the OK to no change last month, returned to voting for a quarter-point increase as she had in March and April. She maintains concern that the ongoing low rates will lead to financial instability. But the Committee’s overall tone still seems to keep the possibility of a hike as more remote than likely in the three gatherings it has remaining in 2016.

Global Markets Fall

Uncertainty about when the rate will finally climb (markets give it only a 20% chance of doing so at the next meeting in September) drove the dollar down against its rivals, its largest tumble in almost two months. Meanwhile, corporate results were resoundingly disappointing as Ford stock fell almost 10% on weak second quarter profits that seemed to signal the end of the auto industry recovery, and Royal Dutch Shell’s quarterly profit fell by 70%.

Gold, Silver, et al Rise

Precious metals continue to flex their muscles. Gold moved 1.6% higher after the Fed announcement, contributing to a 26% increase this calendar year and plenty of ceiling left. Silver bounded even higher, up 3.7% to a 46% rise in 2016. Both increases were the most significant since the Brexit shock. Platinum is near a 14 month high, surging 3.1% in the wake of the Fed statement, and palladium refuses to slow down, marking 6 weeks of gains in a row.

Take-Away

Fed officials, with the exception of Ms. George, give consistent signals that there is little appetite for an interest rate increase any time soon, amidst a fragile U.S. recovery and what the Committee’s own statement called “global and economic financial developments.”