Gold near three-month high as investors expect United States rate hike delay

Single-family building permits climbed to an annual rate of almost 700,000 units in August, up about 5 percent from the fourth quarter of 2014, but housing growth remains milquetoast at best, Federal Reserve Board Governor Lael Brainard suggested while speaking at the 57th National Association for Business Economics Annual Meeting in Washington, D.C., on Tuesday.

Yesterday’s retail sales report was just the latest to cast serious doubts over the strength of the US recovery at a time when the Fed is struggling to convince the markets that now is the time for a rate hike.

Tarullo, who rarely comments in public on monetary policy, is the second Fed governor this week to urge caution on the timing of rate hikes.

Following the speech, Mr. Evans said he can envision a series of three separate quarter-point rate increases in 2016, and reiterated that he thinks any move should be gradual.

Weak economic figures may add to the load of central bank to defer the first rate increase in nearly ten years, following a weaker-than-projected non-farm payrolls report earlier this month and worries on the world economy. If they are, then a rate hike would negatively impact economic activity and could impact the labor market as well.

Turning to United States markets, the Dow Jones industrial average and S&P were up 0.2 percent and 0.1 percent, while the dollar was 0.1 percent softer at $1.1366 against the euro.

According to Mr. Tarullo, FED should wait for further tangible evidence or pick up inflation before moving to hike rates.

Gold prices “tend to reflect investors attitude toward monetary uncertainty and current or future central bank actions, primarily those of the Federal Reserve”, said Michael Cuggino, a fund manager at Pacific Heights Asset Management.

The Fed Governor warned against visceral reactions, such as pushes in the marketplace for an increase in interest rates, given the economy’s fragile growth. Yet in her press conference following the Fed’s September meeting, Yellen spoke at length about inflation, going so far as to say the Fed’s credibility rests on getting inflation back to its goal of 2%.

Last week, emerging market currencies and stocks gained tremendously as markets responded to the perceived delay in higher USA interest rates. The Fed meets on October 27-28 and December 15-16. And that has acted as a catalyst for gold prices this month.

“Because of a few confidence though among the Fed officials that they could still see a rate hike, I don’t see a substantial dip in the greenback against other major currencies”, he said.