Gold Sets 6-Week Highs As June FOMC Meeting Gets Underway

Gold continued its rebound in early U.S. trading, as the two-day FOMC meeting got underway. The yellow metal established a new six-week high at 1289.82 before slipping back into the range.

U.S. retail sales for May came out modestly better than expected, driven largely by a 2.1% increase in spending at gasoline stations. The rebound in energy prices all contributed to a 1.4% rise in the U.S. import price index in May, the biggest m/m jump in four-years.

While the indication of rising inflation is typically seen as a positive for gold, none of today's data where so out of line as to alter Fed rate hike expectations. It is widely anticipated that the Fed will remain on hold when they announce policy tomorrow. Additionally, we once again have to look out to December to find odds greater than 50/50 for a tightening.

While the tenor of tomorrow's policy statement will be important, the Fed is largely out of the picture at this point. If the Fed doesn't make a move in July — and that seems unlikely — they will probably stay on hold through the U.S. elections in November. That leaves the market to focus on persistent global growth risks and a Brexit campaign that appears to be gaining momentum.

The latest four polls on Brexit suggest that voters favor leaving the EU. The Sun, Britain's top-selling newspaper with a circulation of 1.7 million, urged its readers to vote 'Leave'. That may further widen the margin for the leave campaign with the actual vote less than ten-days away. While the odds at have narrowed, betting shops continue to show the stay campaign with an advantage.

Uncertainty — both on the Brexit and growth fronts — is generating safe-haven demand for gold. This should continue to underpin the market through the Brexit referendum on June 23, and quite likely beyond. If on top of that, the FOMC statement is particularly dovish — taking July off the table — we could well see the yellow metal extend beyond the May high at 1303.80.