Beige Book
Have you seen the Green Book? It’s a bit naïve, but generally great and funny movie. The film was named after The Negro Motorist Green Book, a mid-20th century guidebook for African-American travelers, which had green cover and was written by Victor Hugo Green.
Although we enjoyed the movie, we are not going to write about the Green Book, but about the Beige Book, which is a different kettle of fish. The latter is published eight times per year by the Fed and its printed version has – surprise, surprise – beige cover. The Summary of Commentary on Current Economic Conditions by Federal Reserve District, which is the official name of the Beige Book, recaps the anecdotal information (obtained through interviews with key business contacts) on current economic conditions in each of the twelve Federal Reserve Districts. This is why the report is sometimes described as “ask your uncle” way of gathering information.
Beige Book and Gold
The Beige Book is a qualitative review of economic conditions based on information collected from a wide range of business and community contacts, which makes it a useful supplement to the quantitative data reviewed by the FOMC prior to its monetary policy meetings. Hence, the Beige Book offers qualitative insights that aggregative statistics will always lack, revealing valuable information for the precious metals investors. Therefore, although anecdotal in nature, some economists argue that the Beige Book tracks the regional economy well and has predictive content over and above other economic indicators.
However, gold investors should not pay too much attention to the Beige Book. First of all, according to researchers from the Minneapolis Fed, because the Beige Book does not improve upon private sector forecasts, and because the FOMC looks at an array of forecasts and national indicators, and Board staff generates its own forecasts – the Beige Book is not a good indicator of the future course of monetary policy and, thus, the gold prices.
Indeed, the chart below shows the gold prices around the releases of the Beige Book between January and April 2019. Although all the publications reported slight/modest to moderate growth, the price of gold behaved differently, indicating the lack of any significant correlation. In others words, asking your uncle might be great, but only when he is aware of something that nobody else knows.
Chart 1: Gold prices (London P.M. Fix, in $) around the releases of Beige Book from January to April 2019.
Another reason is that the report is compiled two weeks before the FOMC meeting, so it does not reveal timely data which could shape the monetary policy or the gold prices. Last but not least, anecdotal data are, well, anecdotal. You can agree or not, but the truth is that markets like hard data which can be quantified. Indeed, according to this paper, although financial markets view the Beige Book as providing information about economic activity, they do not consider it as a signal of monetary policy in the short run. Anecdotes are great during small talks, but not when you invest real capital into precious metals or other assets.