The Fed’s April post-meeting policy statement is scheduled to be released today at 2 p.m. EDT. What can investors expect from it? How can it affect the gold market?

It can be said that very little is expected from today’s announcement, since the Fed explicitly ruled out an interest rate hike in April in its March policy statement, while Chairwoman Yellen is not holding a press conference afterward and the FOMC is not releasing any new economic projections.

However, the Fed’s officials may give some clues about the timing of the interest rates hike. Some analysts are expecting an explicit signal that June is off the table, but we believe that the FOMC will not rule out the next meeting, because it wants to be as flexible as possible. What is perhaps more important is that the policy statement will give an updated view of its economic assessment. Given the weak economic data in the first quarter, we expect a more dovish stance of the Fed (it will, at least, acknowledge the weak recent data).

The crucial point is how will the FOMC describe and explain the winter slowdown? Will they blame the weather or the appreciation of the U.S. dollar? Will they mention the weak manufacturing orders and cuts in capital expenditures in the energy sector? How will they explain the March slowdown in hiring?

Waiting for the FOMC’s statement, it is worth briefly reviewing recent and forthcoming data. Two days ago, Fitch downgraded Japan from A+ to A over fiscal concerns, while yesterday the Richmond Fed Manufacturing Index came in negative, confirming the weak economic activity. It seems that consumers are acknowledging the slowdown, since the consumer confidence index dropped in April to 95.2 from a revised 101.4 in March, which is the lowest level since December. The only recent positive (but only for homeowners, not for potential buyers) news is that U.S. house prices picked up in February, rising 0.5 percent, according to the S&P/Case-Shiller 20-City Composite Index.

This week is quite busy. Today, just a few hours before the FOMC’s statement, the first read on Q1 GDP will be released, and taking into account the 0.1 percent forecast by the Atlanta Fed, we believe that the market consensus forecasts of around 1 percent growth in the first quarter are too optimistic. This week, investors should also look at the Employment Cost Index for Q1, March personal income and outlays, Chicago and Markit PMIs, ISM Manufacturing Index and construction spending.

The bottom line is that investors should not expect major surprises from today’s statement. The Fed will have to acknowledge the weak economic data in the first quarter, which could be positive for the gold market at the margin. The most important thing in the forthcoming statement is how the Fed will explain the recent weak economic activity and how it will assess the future. The gold prices can be affected in both ways, depending on the FOMC’s stance, however we believe that the recent weak economic data is fundamentally bullish for the gold market.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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