MORNING CALL: Jerome Powell May Surprise Markets

Invetsors are wondering if the Fed chairman is going to move the needle on the interest rate *Gold retraced from its 6-year high

Gold price has retraced from its six year high as investors are not fully certain about the Fed’s next action. You cannot neglect the fact that the fed can always sit out and say that they need more time to observe the economic data and this is despite the fact that the chairman of the Federal Reserve has admitted that the downside risk has increased for the economy.
The Cboe/Comex gold volatility index has touched a multi-year high and touched a level not seen since early 2017. This was when Donald Trump was only coming into power and investors were thinking that his polices are going to derail the market.
However, the recent rise in the gold volatility index is primarily due to on-going trade war between the US and China and the fact the picture doesn’t look so bright for the upcoming earning season. A large number of investment banks have already downgraded their earning expectations. The below chart shows a spike in the gold volatility and the lower panel shows the Citigroups global earnings revision index which is in deep negative territory. This confirms a pessimistic outlook.

All eyes will be on the Fed chairman’s speech and his words are going to move the gold price. There is always an element of surprise from the Fed and this is the reason that we have seen the dollar index recovering some of its losses. The bigger question for everyone is how big that interest rate cut will be?