FOMC Fallout: Gold Emerging As Explosive Winner
0The big headline from the December FOMC meeting was a decisively hawkish turn by the Fed in response to inflationary trends which the group now admits is more than transitory. A plan to accelerate tapering, in effect winding down quantitative easing, while signaling three rate hikes in 2022, represents a major shift in policy compared to even a few months ago. We highlight several inconsistencies in the Fed's messaging that have likely added to macro uncertainties. Despite an initial rally in stocks taking the SP 500 ( SPY ) back to an all-time high, risk assets are again under pressure. Bonds climbing and Dollar selling off reflect a deep skepticism that the Fed will be able to follow through with its tightening signal. The result is significant implications for the broader market and a bearish setup for stocks. In our view, gold ( GLD ) is the big winner which we believe can gain momentum through 2022. This latest Fed meeting may have been the catalyst gold and precious metal mining investors have been waiting for. We are bullish and expect more upside through 2022. (source: finviz.com) December Fed Meeting Takeaway The stakes were high entering this December FOMC meeting, considering it followed the November CPI which showed annual inflation reaching 6.8%, a 39-year high . A big theme during the Q3 earnings season was companies across several sectors noting higher costs as pressuring margins, while the understanding is that inflation has also reached a point where it is beginning to impact consumer spending. In other words, the market was looking for the Fed to act which also follows some political pressure considering headlines of inflation possibly undermining the White House economic plans. On the other hand, there was some thought that the group could maintain a "wait and see" approach considering some questions regarding the underlying momentum in the economic recovery. Into December, surging Covid cases and uncertainty regarding the new Omicron-variant are likely impacting activity indicators. There was also the soft November payrolls report and weaker than expected monthly retail sales data just this week. A pullback in energy prices will likely slow down inflation readings in the coming months anyway. Nevertheless, the Fed ended up justifying a more aggressive policy positioning by sticking with the script that the economy continues to strengthen, even if that point is debatable. Going through the new economic projections, the group made several revisions from the last quarterly update: The Fed revised lower its 2021 GDP forecast to 5.5% from the September estimate of 5.9%, while bumping up its 2022 GDP forecast to 4% from 3.8% previously.