Gold continues to struggle even in light of a sharp decline in the US Dollar. Gold posted respectable gains in New York trading today, but gave up those gains in Globex trading. As of the close of trading in New York today, gold had added $15.10 in value and was set at $1664. As of 4:30 p.m., the most active December EDT gold futures contract is up just $5.80 or 0.35% and is set at $1,654.70. The December contract traded at a high of $1674.30 and a low of $1649.10 after opening just $0.80 above today’s low.
The weakness of the dollar has largely contributed to preventing gold prices from falling. Currently, the dollar is down 1.182 points or -1.04% and fixed at 112.025. As seen through the KGX (Kitco Gold Index), market participants were mostly sellers with spot gold currently pegged at $1649. That’s a net gain of $4.60 today. However, on closer inspection, market participants were aggressive sellers pushing physical gold down $12.80. Without the weakness in the dollar which added $17.40, gold’s gains would have been non-existent.
Market participants have witnessed strong risk sentiment in US equities. The Dow gained 1.86%, the S&P 500 gained 2.65% and the NASDAQ composite gained 3.43%.
Market participants who trade precious metals are still genuinely concerned about the two remaining FOMC meetings in November and December. It is widely anticipated that there is a high probability that both Federal Reserve meetings will contain interest rate hikes of 75 basis points each.
According to the CME’s FedWatch tool, there is a 97.4% chance of the Federal Reserve raising rates by ¾% at the November FOMC meeting and a 65.3% chance of a rate hike by ¾% in December. This would take the federal funds rate from 300-325 basis points currently to 450-475 basis points by the end of 2022.
Last week, market participants were active buyers of 30-year bonds and 10-year Treasuries, resulting in an inverted yield curve, with yields on 10-year notes slightly higher than those on 30-year bonds. Today, that inversion has been neutralized, with the 10-year note and 30-year bond yielding 4.015%.
Inflation continues to hit an all-time high, with the latest CPI core data showing inflationary pressures rising slightly from 6.3% in August to 6.5% in September. However, the Eurozone is experiencing much higher levels of inflation than the United States, with the CPI index hovering around 10%. As long as inflation remains extremely high and persistent, the Federal Reserve is unlikely to reduce the size and frequency of rate hikes. It remains very likely that the extremely aggressive monetary policy of the Federal Reserve will lead to a recession in the first quarter of 2023. The question remains as to how deep a recession will be resulting from the aggressive rate hikes of the Fed.
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Wishing you as always good exchanges,
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