Based on golf futures, the most active December 2022 Comex contract is currently up $11.20 and set at $1669.70. Of note today’s intraday high of $1679.40 came in just below the first resistance level at $1680. However, once again we can see that while gold’s gains are respectable, they are entirely driven by dollar weakness. Additionally, market participants bid the precious metal lower.
According to Reuters, “Gold prices hit a two-week high on Wednesday as the dollar and U.S. bond yields slipped on expectations that the Federal Reserve will temper its aggressive rate hike stance from December.” .
As of 4:05 p.m. EDT, the dollar index is down 1.290 points or 1.16% and pegged at 109.54. The lack of market participants offering gold higher can be seen through the eyes of the Kitco Gold Index (KGX). The above KGC screenprint was taken at 3:53 p.m. EDT and shows spot gold was currently pegged at $1665 with a net gain of $11.90. However, as we have seen several times recently, it was the weak dollar that pushed spot gold up $17.20 and selling pressure that pushed gold down $17.20. $5.30.
This clearly shows that market participants continue to focus primarily on the pace and extent at which the Federal Reserve continues to raise interest rates. It is widely believed that the Federal Reserve will raise rates by 75 basis points in November and, for the most part, has already been priced into current market prices. It is also widely believed that the Federal Reserve will continue to raise rates at the December FOMC meeting.
According to the FedWatch tool, there is a 55% chance that the Federal Reserve will raise rates between 425 and 450 basis points, and a 37.7% chance that it will raise rates between 450 and 475 basis points. in December.
In February 2023, there is no decisive consensus on the magnitude of the rate hike. According to the CME’s FedWatch tool, there is a 26.8% chance that the Federal Reserve benchmark rate will be between 450 and 475 basis points, a 42.4% chance that the federal funds rate will are between 475 and 500 basis points, and a 23.7% probability that by the end of the year the benchmark rate will be between 500 and 525 basis points.
Uncertainty about the magnitude of future rate hikes is directly related to anticipation of how the Federal Reserve will change as more data becomes available. This week there will be critical reports that will help shape the Federal Reserve’s decision on rate hikes in November and December.
On Thursday, the government will release its third-quarter GDP data along with updated US national debt figures. On Friday, the government will publish its report on core inflation or PCE figures. This could provide key and important data that will guide the Federal Reserve’s future actions.
The bigger question then is that economists and analysts expect to see an economic contraction based on the rapid rate hikes that began in March. However, how will inflationary pressures react if we don’t see a reduction in inflation after five consecutive rate hikes by the Federal Reserve this year?
The fear remains that after all the rate hikes by the Federal Reserve, Friday’s report reveals that they have had only a nominal effect on lowering inflation.
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