On Tuesday, Bostic gave a speech in Montgomery. What does it mean for the gold market?
Yesterday, Raphael Bostic delivered a speech entitled “A View of the U.S. Economy and Rural and Urban Labor Market Dynamics” in Montgomery, Alabama. In case you are wondering who Raphael Bostic is, we are here to satisfy your curiosity. He is the new Atlanta Fed President. Bostic began the job mid-year, replacing Dennis Lockhart in the position. We did not analyze his stance earlier, as he is a non-voting member in 2017. But this will change in 2018, so let’s analyze Bostic’s views on monetary policy.
In Tuesday’s speech he pointed out that the U.S. economy was nearing full employment. Hence, he expressed an opinion that inflation would rebound. Therefore, “it will be appropriate for interest rates to rise gradually over the next couple of years.”
So is Bostic a hawk? Well, not necessarily. In a September speech in Atlanta, he said : “my inclination is that the stance of monetary policy is not currently too accommodative”. He also often mentions labor force disparities in his speeches.
So maybe he is a dove? It’s not the case either. We consider him a neutral, as he supports gradual tightening, just as Yellen or Powell.
What does it all mean for the gold market? Well, Bostic will be a voting member of the FOMC in 2018, so his views will shape the Fed’s monetary policy and, thus, the price of gold. He replaced centrist Lockhart as the Atlanta Fed President and he is also centrist, so one could say that nothing will change. However, what really matters is not that Bostic replaced Lockhart (as he also was a non-voting member of the FOMC in 2017), but that the FOMC in 2018 will be more hawkish than in 2017. This is because two doves – Charles Evans and Neel Kashkari – will drop out the voting group (as well as hawkish Patrick Harker and centrist Robert Kaplan). Meanwhile, two centrists – John Williams and Raphael Bostic – will join the voting group (as well as very hawkish Loretta Mester and the Richmond Fed President who has not yet been appointed). The net effect is clear: the strengthening of the hawkish camp at the FOMC – not good for the bullion.
To sum up, the press focuses on the fact that Bostic is the first African-American and openly gay president of one of the Fed’s regional banks. But we are not interested in his skin color or sexual orientation – what really matters is whether he is a hawk or a dove. It seems that Bostic is a centrist. It may seem to be neutral for the gold market. However, it implies that the FOMC will turn to be slightly more hawkish in 2018, which is fundamentally bearish news for the yellow metal. We will elaborate on this issue in the December edition of the Market Overview. Stay tuned!
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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.
Arkadiusz Sieron, Ph.D.
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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