FOMC Minutes Reveal Hikes Will Continue With Smaller Rate Increases

Federal Reserve Will Begin to Reduce the Amount of Each Rate Hike Beginning in December

There are two primary techniques or tools they use to achieve their goal of reducing inflation to its target rate of 2%. One technique is by adjusting the money supply by buying or selling assets from their balance sheet. Their asset balance sheet includes U.S. debt instruments and mortgage-backed securities (MBS).

However, the primary technique they use is by adjusting their benchmark “Fed funds” interest rate. The Federal Reserve has completed seven of the eight yearly meetings and except for January has raised its Fed funds rates at each consecutive meeting. The Fed has raised rates by 75 basis points at each of the last four consecutive meetings (June, July, September, and November), taking their benchmark rate from between 0 and 25 basis points in March to its current rate which is between 375 and 400 basis points.

Today’s minutes revealed what market participants have been already anticipating which is that the Federal Reserve will begin to reduce the amount of each rate hike beginning in December. According to the CME’s FedWatch tool, there is an 80.5% probability that the Federal Reserve will raise its Fed funds rates by 50 basis points in December.

The pace at which the Federal Reserve has been raising rates can be best described as extremely hawkish and aggressive with consecutive large rate hikes for the last four meetings. Market participants and economists have been voicing concern that the Federal Reserve has been overly aggressive risking a hard landing.

As reported by Reuters News service, Tai Wong, a senior trader at Heraeus Precious Metals in New York said, “Gold traded higher in a relief rally after the Fed minutes contained no hawkish surprises, and just about confirmed the pace of hikes would drop to 50 bps in December. Furthermore, he added, “The financial markets are convinced the Fed is overtightening so it is dovishly interpreting the minutes which contains no real surprises given Fed commentary the past two weeks.”

Gold Reaction to the FOMC Minutes

Gold daily chart

As of 4:40 PM EST gold futures basis, the most active December 2022 contract is up $10.70 or +0.61% and fixed at $1750.60. The chart above is a daily Japanese candlestick chart of gold futures which shows that although there was a moderate gain today the real news was the increased volatility that led to an intraday low of $1719.

Gold 1 hour chart

However, the intra-day volatility that occurred took place in an extremely short period which can be seen in the 60-minute Japanese candlestick chart of gold above. The single candle highlighted with a rectangular box occurred at 8:00 AM EST hours before the Federal Reserve released minutes from the November FOMC meeting. Although gold opened and closed at roughly $1737 during that one-hour time span it traded to a low of $1719 and a high of $1740.

We want to wish all of our readers and subscribers residing in the United States or Canada a Happy Thanksgiving. For those that do not celebrate this holiday, hopefully, there are multiple reasons to be thankful even in this climate of extreme financial uncertainty.

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Wishing you as always good trading,

Gary S. Wagner

Federal Reserve Minutes May Show Mixed Opinions Amidst Its Members

The Economy Will Determine the Final Decision

Speaking with CNBC’s Closing Bell, Loretta Mester, Cleveland’s Federal Reserve President said that the pace of rate hikes could be slowed, but inflation figures were not yet convincing enough to stop the hikes entirely.

“I think we can slow down from the 75 at the next meeting, I don’t have a problem with that”.

This tone is in agreement with Mary Daly the San Francisco Fed President who said in a separate remark on Monday that inflation remains too high and policymakers have a way to go before completing their tightening campaign. But both Federal Reserve presidents strengthened their expectations that the central bank will slow the pace of interest rate increases next month even as they underscored the need to continue tightening their aggressive monetary policy.

According to Bloomberg News, both Federal Reserve presidents said, “they both characterized the need for officials to be judicious as they calibrate policy.”

The article in Bloomberg News also said, “Several Fed officials have signaled they may consider a 50 basis-point increase at their next meeting in mid-December, with the final decision depending on what happens with the economy.”

The Other Face of the Fed

Still, some Federal Reserve officials are still exceedingly hawkish such as James Bullard president of the St. Louis Federal Reserve who recently said that the Federal Reserve may need to raise interest rates as high as 7% to put downward pressure on inflation. Another extremely hawkish Federal Reserve member Neel Kashkari, the Fed President of Minneapolis said that the Federal Reserve needs to “keep raising interest rates until it is certain inflation has stopped climbing”.

According to the CME’s FedWatch tool, there is a 75.8% probability that the Federal Reserve will initiate a rate hike in December of only 50 basis points, breaking the cycle of raising rates by 75 basis points as they have done during the last four consecutive FOMC meetings. The probability of a 50-basis point rate hike in December is slightly lower than the probability assessed 24 hours ago of 80.6%.

The Federal Reserve will release the minutes from the November FOMC meeting tomorrow, one day before the Thanksgiving holiday begins in the United States and Canada. Because of the shortened holiday trading schedule, we could expect to see lower volume than usual which can ramp up volatility as it has during past holiday weekends.

Gold futures daily chart

As of 4:40 PM EST gold futures basis, the most active December contract is currently trading up $1.50 or 0.09% and fixed at $1741.10.

For those who would like more information simply use this link.
Wishing you as always good trading,

Gary S. Wagner

Federal Reserve May Be Adopting a New ‘speed Vs. Destination’ Paradigm

Gold Market Awaits FOMC Minutes

The minutes will most likely be the most important financial report released during this shortened holiday week. The Thanksgiving holiday is celebrated in both the United States and Canada.

That being said, there has been a tremendous amount of speculation as to what information will be contained in the minutes that have not been discussed or commented on by analysts or economists.

There has also been a multitude of statements made by various Federal Reserve officials that have come out since the statement and press conference that occurred immediately following the conclusion of the November FOMC meeting.

During the post-meeting press conference by Chairman Jerome Powell, he said that his Colleagues including himself continue to believe that the Federal Reserve still has “some ways to go” to complete their initiative to reduce the current level of inflation. He also admitted that reducing inflation at its current levels has become more challenging.

“That means we have to have policy more restrictive, and that narrows the path to a soft landing,”

A very astute observation and analysis of the Federal Reserve’s current monetary policy was made by EY Parthenon Chief Economist Gregory Daco. In a note, he said, “Fed Chair Powell recalibrated monetary policy at the November FOMC meeting by adopting a new ‘speed vs. destination’ paradigm – indicating an intention to reach a higher terminal fed funds rate while doing so at a slower pace.” He also said that “Central banks’ determination in tightening monetary policy aggressively along with the lagged effects of monetary policy on the economy increases the odds of an overtightening.”

This is in line with a statement made by Federal Reserve Governor Christopher Waller told a conference in Sydney, Australia Sunday, November 13, “We’re not softening…Quit paying attention to the pace and start paying attention to where the endpoint is going to be. Until we get inflation down, that endpoint is still a way out there.”

This differs greatly from the recent statements by James Bullard the St. Louis Federal Reserve President who said, “Thus far, the change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023”.

Whereas multiple members of the Federal Reserve have postulated that they would need to raise their benchmark rate to around 5%, James Bullard said that 5% would be at the low end of the range for where Fed funds need to be and that the upper level is closer to 7%. The Federal Reserve raising their benchmark rate to this level has not been factored into current market pricing.

Gold and US Dollar Today

Gold futures daily chart

The anticipation of the November minutes along with statements made throughout last week has continued to pressure gold lower. As of 5:15 PM EST gold futures basis, the most active December contract is currently fixed at $1739.50 after factoring in today’s decline of $14.90 or 0.85%. Interestingly the percentage decline in gold today matches the percentage gain in dollar strength. The dollar is currently fixed at 107.705 which is a net gain of 0.82%.

US Dollar Index futures daily chart

For those who would like more information simply use this link.
Wishing you as always good trading,

Gary S. Wagner

Market Sentiment for Gold Adjusts to Recent Fed Officials’ Comments

The Merriam-Webster dictionary defines sentiment as, “an attitude, thought, or judgment prompted by feeling: predilection.: a specific view or notion: opinion.: emotion.: refined feeling: delicate sensibility especially as expressed in a work of art.: emotional idealism.”

As it pertains to the financial markets, market sentiment is the view or attitude that creates our opinion as to whether an asset class is overvalued or undervalued. It shapes and changes the value of a stock or commodity’s price.

Market sentiment is overly sensitive to statements and comments made by Federal Reserve officials because those individuals have the power and influence to change monetary policy. There is a dramatic difference between the perception of upcoming Federal Reserve monetary policy changes and the actions of Federal Reserve officials.

Rate Hikes Moved Gold Lower From March to November

The Federal Reserve raised rates at every FOMC meeting this year except in January, from March through November, a total of six rate hikes. Over the last four FOMC meetings (June, July, September, and November) they raised rates by 75 basis points.

Gold futures daily chart

The aggressive nature of the Federal Reserve’s monetary policy moved gold dramatically lower from March up until the beginning of November. Gold traded to its highest value this year of $2078 in March. By the beginning of November, gold prices had dropped to approximately $1621, resulting in a price decline of 21.99%.

Gold Rallied After Fractional Drop in US CPI Last Week…

During the first week of November, market sentiment shifted because inflation rates had declined fractionally and investors viewed this fractional drop as a signal that the Federal Reserve would begin to loosen its aggressive monetary policy. This caused gold to rise dramatically from $1621 to an intraday high of $1792 by Tuesday, November 15. Because the CPI index dropped from 8.2% year-over-year in September to 7.7% year-over-year in October investors believed that the Federal Reserve would become more dovish regarding upcoming rate hikes.

…But Hawkish Fed Members Changed Sentiment This Week

However, Federal Reserve Governor Christopher Waller told a conference in Sydney, Australia Sunday November 13, “We’re not softening…Quit paying attention to the pace and start paying attention to where the endpoint is going to be. Until we get inflation down, that endpoint is still a way out there.” On November 14 multiple Federal Reserve officials made comments to the contrary.

San Francisco Federal Reserve President Mary Daly, “It’s far from a victory”. Lorie Logan the Federal Reserve’s president of the Dallas central bank said that last week’s report is, “a welcome relief”, but will not alleviate the need for more rate increases possibly at a slower pace.

The statements made over the weekend and on Monday, November 14 dramatically changed market sentiment concerning gold prices. Gold prices hit the intraday high above $1790 the following day and then began to have three consecutive days of price declines from Wednesday to Friday. To add fuel to the fire today St. Louis Federal Reserve President James Bullard said that the Fed’s benchmark policy right might need to rise as high as 7%.

The statements moved gold pricing from Tuesday’s high to its current pricing. As of 4:27 PM EST, the most active December futures contract is currently fixed at $1751.30 after factoring in today’s net decline of $11.60. The statements will likely continue to create bearish market sentiment for gold.

For those who would like more information simply use this link.
Wishing you as always good trading,

Gary S. Wagner

Are We Seeing the First Indications of a Correction in Gold?

Gold Movements in 2022

During the first week of January gold was already in rally mode, and opened at $1827 on the first day of trading, January 3. By March 8, gold had traded to its highest value this year at $2078 per ounce. The result was a rally in which gold gained approximately $251.

Chart 1 Daily Gold 01/03/22 to 03/08/22

What followed was an extended multi-month correction from March 8th until the last week of September when gold traded to a low of approximately $1620. Gold would test this level on three occasions from September up until the first week of November. During this correction, gold would trade through a series of multiple lower highs and lower lows giving technical confirmation that gold was fully immersed in a bearish scenario.

Chart 2 GOLD with moving averages

Another indication was the positioning of three moving averages which moved into full bearish alignment (chart 2 above) which continues to this day. Full bearish alignment using three moving averages results in the longest average (200-day) having the highest value, followed by the 100-day moving average below it, and the 50-day moving average below that. Currently, the 200-day moving average is $1808.60. The 100-day moving average is $1727.50, and the 50-day moving average is $1681.

Chart 3 480-minute gold chart

Chart 3 is a four-hour Japanese candlestick chart of gold futures highlighting the last three highs. After gold hit its highest value this year in March gold prices declined and could be characterized by four consecutive lower highs. However, as you can see on the chart above the first two lower highs occurred in the middle of August when gold hit a high of $1825. That was followed by a lower high at $1738 during the first part of October.

Is Gold Ready to Fall?

Gold hit approximately $1620 for the third time at the beginning of November which marked the end of the multi-month correction and the beginning of a rally. Yesterday gold hit a high of $1782 and in the last 24 hours has moved to lower pricing. As of 5:16 PM, EST gold futures are currently fixed at $1762.80 after factoring in today’s decline of $13 or 0.73%.

This indicates the possibility that yesterday’s high marks the end of this leg of the current rally and could be followed by a correction taking gold to lower pricing. If the current correction results in a higher low than the last low we would get confirmation that the multi-month correction has indeed concluded.

Why Did Gold Price Fall Over the Last 24 Hours?

The decline that occurred in gold over the last 24 hours is based upon recent comments by members of the US Federal Reserve in which they signaled that they would not abandon their current hawkish monetary policy to continue to reduce inflation to an acceptable level. The core PCE is still at approximately 6% which is three times the Federal Reserve’s target level of 2%.

While the amount of each rate hike could be reduced, their endgame is still to take inflation close to their target level. Therefore, while we could see interest rate hikes of 50-basis points rather than 75-basis points the Fed today signaled they would continue to raise rates until their objective of lowering inflation is met.

For those who would like more information simply use this link.
Wishing you as always good trading,

Gary S. Wagner

Gold’s Recent Short-term Trend Is In a Defined Cycle – Rally, Consolidate, Repeat

This move began during the first week of November and continues to this day. In fact, we are getting the first indications that the extended correction at least for now has concluded and a new stage has begun.

Gold Impressive Rally In Three Charts

The best way to describe the characteristics of this recent rally is using a short-term 60-minute chart which clearly shows that gold is in a defined cycle. That cycle has three components; rally, consolidate, and repeat. The chart below is a 60-minute candlestick chart of gold futures which visibly illustrates that characteristic.

Chart 1 – Gold 60 minute Chart

Gold has in all likelihood concluded the multi-month correction that began in March 2022. This extended correction began after gold completed a dynamic rally. This rally took gold futures from approximately $1780 during the first week of January to gold’s highest value in 2022 at approximately $2078, resulting in a $300 gain per ounce. After gold traded $10 below the record high of $2088 the precious yellow metal began an extended multi-month correction from March to November.

The chart below is a daily candlestick chart of gold futures from the beginning of January to November 16. After hitting $2078 in mid-March gold would trade through a series of lower highs and lower lows. Gold would trade to four consecutive lower highs and two consecutive lower lows before finding potential support defined by a near triple bottom that began at the end of September and concluded at the beginning of November at $1621.

Chart 2 – Daily candlestick chart of gold

Concurrently the Federal Reserve dramatically changed its extremely accommodative monetary policy during the FOMC meeting in March. On March 16, the Federal Reserve implemented its first interest rate hike since 2018. The Fed raised their benchmark “Fed funds” rate by 25 basis points taking the rate from 0 to 25 basis points to between 25 and 50 basis points. During the next FOMC meeting on May 4, the Fed would raise rates by 50 basis points taking Fed funds rates to between 75 and 100 basis points.

The Federal Reserve adjusted the size of each rate hike beginning at the June FOMC meeting. For the next three consecutive FOMC meetings (June, July, and September) the Federal Reserve raised its benchmark rate by 75 basis points after each of their Federal Open Market Committee meetings. Currently, the Federal Reserve has set its benchmark rate between 375 and 400 basis points.

The chart below is also a daily Japanese candlestick chart of gold futures with the timeline of rate hikes added to the chart. There is not an exact correlation between the timeline of rate hikes and the lower lows that resulted from them, gold’s price decline of approximately $457 or -21.99% was for the most part the direct result of an exceedingly aggressive series of rate hikes.

Chart 3 – Daily gold chart showing lower highs and lows and Fed rate hike timeline

Why Did Gold Price Explode to the Upside?

It is now anticipated that the Federal Reserve will begin to change the size of any additional rate hikes beginning in December. According to the CME’s FedWatch tool, there is an 85.4% probability that the Fed will only raise rates by 50 basis points rather than 75 at the December FOMC meeting. The thought of the Federal Reserve easing the amount of each rate hike has given a tremendous boost to the price of gold.

The recent climb from $1621 to $1777 (the current price of December futures) is directly attributable to the belief that the Fed will ease the magnitude of the rate hikes in December and 2023. This is why we have seen such a strong rise which has taken gold futures to a higher high than its previous high for the first time since March. In under two weeks, gold has moved over $150 by having a rally, then consolidating, and then repeating the process.

For those who would like more information simply use this link.
Wishing you as always good trading,

Gary S. Wagner

Gold Advances on Geopolitical Trepidation as Russian Missiles Hit Poland

Russian Missile Strike Could Certainly Risk Widening the War in Ukraine

Russia’s invasion of Ukraine has been escalating to accelerated levels of military action. According to sources in Ukraine and reported by Reuters news, “Russia rained missiles on cities across Ukraine on Tuesday in what Ukraine said was the heaviest wave of missile strikes in nearly nine months of war, echoing a pattern in recent weeks of Moscow lashing out far from the front after battlefield losses.”

Today the Russian military launched over 100 missiles and drone attacks into Ukraine in the latest escalation of its invasion.

This escalation has led to missiles landing in Poland and killing two people in an explosion in Przewodow, a village in eastern Poland approximately 10 km from the border with Ukraine. Concerns have emerged that because Poland is a member of NATO, the Russian missile strike could certainly risk widening the war in Ukraine.

In a report by Reuters today, “Ukraine’s President Volodymyr Zelenskiy said on Tuesday, without producing evidence, that Russian missiles had hit Poland, a NATO country, in what he called a “significant escalation” of the conflict.”

However, the Pentagon and the US State Department said they could not confirm the report but were working with the Polish government to gather information. The State Department did acknowledge that the report was “incredibly concerning”.

Russia’s invasion of Ukraine is now in its ninth month and has worsened with the largest wave of missile strikes many of which have targeted the Ukrainian civilian population. This most recent missile strike into Poland if confirmed triggers treaty articles by NATO under which NATO members will meet to assess the threat and if necessary take concrete action.

NATO Secretary General Jens Stoltenberg said on Monday, “It is up to Ukraine to decide what terms are acceptable for negotiations to bring an end to the war Russia is waging against the country, warning Moscow’s strength should not be underestimated despite Kyiv’s recent battlefield successes.

Market Reaction

Gold daily chart

This is raised geopolitical uncertainty in the region to a new and heightened level which is been highly supportive of gold prices today. As of 4:54 PM EST gold futures basis, the most active December 2022 contract is up $4.90 and fixed at $1781.80. Today’s geopolitical uncertainty took gold to an intraday high of $1791.80. The dollar was trading higher earlier in the trading session but is currently trading fractionally lower. The dollar index is currently trading down 0.10% and fixed at 106.42.

For those who would like more information simply use this link.
Wishing you as always good trading,

Gary S. Wagner

Gold Recovers From Lows Even With Fed Governor Waller’s Hawkish Warning

Gold Was Able To Reverse Higher Despite Hawkish Comments

Federal Reserve Governor Christopher Waller told a conference in Sydney, Australia today, “We’re not softening…Quit paying attention to the pace and start paying attention to where the endpoint is going to be. Until we get inflation down, that endpoint is still a way out there.”

Gold traded to a low of $1762 at approximately 8:13 PM EST. This morning’s decline was the result of both dollar strength and a warning by Christopher Waller that the Federal Reserve’s monetary policy was not wavering from its strong commitment to continue to use rate hikes to fight against persistent inflation.

On Sunday speaking at a conference sponsored by UBS Waller said that although the central bank is looking at the possibility of a slower pace of raising interest rates, this consideration should not be interpreted as a softening in its fight for price stability.

Gold futures daily chart

As of 3:33 PM, EST gold futures basis most active December 2022 contract is trading up $6.60 or 0.37% and fixed at $1776. This is just a few dollars off today’s high of $1778.40. Today’s gains in gold futures are occurring concurrently with dollar strength which has made today’s moderate gains even more impressive.

Today the dollar index has gained +0.42% and is currently fixed at 106.605. After trading to a low of 106.20 on Friday the dollar has had a fractional recovery from those lows.

US Dollar Index futures daily chart

Inflation Data, Monetary Policy, US Dollar and Gold Correlation

The table below is a month-by-month table of CPI from October 2021 to October 2022 issued by the US Bureau of Labor Statistics. Last week’s CPI report revealed that inflation had a fractional decline moving from 8.2% in September to 7.7% year-over-year in October.

Inflation has been elevated for an extended time considering that one year ago (Oct. 2021) headline inflation was over 6% and now in 2022 the CPI hasn’t declined but rather is higher than last Halloween when it felt like it might still be a trick. Now the public is aware that they were treated instead to a constantly climbing cost of living.

Monthly CPI, Year-over-Year data

Although the aggressive rate hikes of the Federal Reserve have certainly had an impact on lowering inflation, a 1.4% decline taking the CPI to 7.7% is still at a level not seen before 2021 for over four decades. CPI at 7.7% is far away from the inflation target set by the Federal Reserve. The core CPI which excludes food and energy costs is just above 6% which is still triple the Fed’s inflation target of 2%.

Table 1 Monthly CPI, Month-Over-Month data

This fact has been highly supportive of gold pricing and according to San Francisco Federal Reserve President Mary Daly, “It’s far from a victory”. Lorie Logan the Federal Reserve’s president of the Dallas central bank said that last week’s report is, “a welcome relief”, but will not alleviate the need for more rate increases possibly at a slower pace.

Currently, the probability of a 50-basis point rate hike at the December FOMC meeting continues to increase now at a probability of 85.4% which is a 5.2% increase from the probability recorded by the CME’s FedWatch tool on Friday.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner

U.S. Dollar Has the Largest Single-week Drop This Year Propping Gold Higher

The U.S. Dollar Fell and Sent Gold Higher

The U.S. dollar just had its largest weekly drop in 2022. On Monday the dollar index opened at approximately 111.034 and as of 3:23 PM, EST is currently fixed and closed at 106.275. In a single week, the U.S. dollar index lost 4.824 points which is a percentage decline of – 4.286%.

USDX Weekly chart

During the same week gold futures basis, the most active December 2022 contract opened at $1678.40 and as of 3:23 PM, EST is currently fixed at $1769.80 which is a net gain of $91.40 or a net gain of + 5.445%.

Gold weekly chart

This means that dollar weakness this week accounted for 78.15% of gains seen in gold, and the remaining 21.285% is directly attributable to market participants bidding the precious metal higher. In other words, dollar weakness was the driving force behind gold’s recent rally and accounted for approximately 4/5 of gains realized in gold futures this week.

What Caused the U.S. Dollar to Drop So Much This Week

The dollar index was created in 1973 to assess the value of the U.S. dollar against other major world currencies. The dollar index is weighed against a basket of six foreign currencies with different weights given to each currency. The six foreign currencies used to assess the value of the dollar index are; the Euro – 58%, Japanese yen – 14%, British pound – 12%, Canadian dollar – 9%, Swedish krona – 4%, and Swiss franc – 4% weight.

One component which drives value changes in the U.S. dollar is the yield from the purchase of United States Treasuries. The U.S. dollar is very sensitive to the yields of U.S. debt instruments such as Treasuries like the 30-year bond or 10-year note. As the yield climbs on U.S. bonds and notes it attracts foreign investments into those fixed assets that have favorable yields, which require dollars to purchase thereby raising the value of the dollar index.

Reciprocally when yields on U.S. bonds and notes fall it causes the reverse as the dollar loses value as foreign investors reallocate investments in U.S. debt instruments to other fixed assets offering favorable yields.

2022 CPI and Inflation Rate for the United States

This week the BLS reported that the CPI index for October increased by only 7.7% year-over-year. This was the lowest value of the consumer price index since January of this year when the CPI came in at 7.5%. The table above is from Cpiinflationcalculator.com and clearly shows that October’s inflation level was one of three months this year that came in under 8%. The average annual inflation rate for 2022 is currently at 8.38% year-over-year.

In January 2022 inflation was at 7.5 year-over-year. Inflation would rise to 8.5% year-over-year in March when the Federal Reserve stepped in and began its first interest rate hike since 2018 of 25 basis points. However, inflation continued to spiral higher and peaked in June at 9.1% year-over-year. From July through August inflation as measured through the consumer price index slowly declined.

During the last week of September, the dollar index hit its highest value this year at approximately 114.793. Since then, the dollar has lost tremendous value as market sentiment began to shift under the assumption that the Federal Reserve would slow its aggressive rate hikes as they were now having an impact on taking inflation lower.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner

CPI Reveals Inflation Came In Under Expectation Causing Gold to Gain $45

Today’s CPI Report Details

Today’s CPI report came in well under estimates even by the forecast by the Federal Reserve Bank of Cleveland’s Inflation Nowcasting. The Federal Reserve Bank of Cleveland’s forecasting tool as recent as yesterday was projecting that the CPI index for October would come in at 8.09%. This morning the BLS reported that the CPI index for October increased by 7.7% year-over-year.

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in October on a seasonally adjusted basis, the same increase as in September, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 7.7 percent before seasonal adjustment.

The index for shelter contributed over half of the monthly all items increase, with the indexes for gasoline and food also increasing. The energy index increased 1.8 percent over the month as the gasoline index and the electricity index rose, but the natural gas index decreased. The food index increased 0.6 percent over the month with the food at home index rising 0.4 percent.

Market Impact

Today’s report immediately had a profound impact on market sentiment sending ripples through asset classes across-the-board. As of 4:15 PM EST gold futures basis, the most active December contract is trading at $1760 which is a gain of 2.71% or $46.50.

The US dollar had a steep selloff giving up 2.45% with the dollar index currently fixed at 107.75. The largest percentage decline today occurred within government debt instruments such as Treasury Bonds and Notes. The CBOE 10-year Note futures contract declined by 7.76% and is currently yielding 3.829%. Futures on 30-year Treasuries declined by 5.53% and are currently yielding 4.081%.

US equities had a strong rally with the Dow Jones Industrial Average gaining 3.7% or a gain of 1201.43 points, and is currently fixed at 33,263.91. The S&P 500 gained 5.53%, and the NASDAQ composite gained 7.35%.

The Market Expects a More Dovish Federal Reserve

The dramatic gains seen in equities and precious metals as well as the sharp selloff in the US debt instruments and the dollar were shaped by the perception that inflation coming in under the estimates suggests we will see a more accommodative Federal Reserve when it meets for the last FOMC meeting this year in December.

FedWatch tool for Nov 10

According to the CME’s FedWatch tool, there is an 80.6% probability that the Fed will raise rates by 50 basis points in December rather than 75 basis points which now has only a 19.4% probability of occurrence. Most noteworthy is the net change in the probability of a 50-basis point rate hike in December which was at 56.8% yesterday and over 80% today.

Gold Price Forecast

What is most significant about today’s inflation report is that although it came in under estimates inflation is still exceedingly at 7.7%. With market perception and sentiment now assuming a more dovish Fed and inflation still at an extremely high rate it is the perfect environment for gold to gain value.

It was the aggressive rate hikes by the Federal Reserve that kept gold from moving higher rather than the sharp decline witnessed in March of this year. Even with inflation spiraling, market participants focused on the effect of rising interest rates rather than rising inflation. This most certainly will reshape market participants’ focus from higher rates to high inflation.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner

Technical Studies Suggest Gold Prices Could Hit New Record Highs by Q4 2023

Events that affect price are but are not limited to; geopolitical, political, and economic, just to name a few. Market technicians use technical studies composed of mathematical formulas to forecast price changes. A common thread amongst technical traders is that mathematics can distill events into numbers.

Market technicians are acutely aware that fundamental analysis is the root cause of price fluctuations. But by distilling these events into numbers it creates mathematical models that remove conjecture and noise from the process of analyzing and understanding the possible implications of events. Technical studies and the math behind them can distill fundamental events in a language that has much less ambiguity.

Gold Price Forecast

Gold futures weekly candlestick chart

The chart above is a weekly candlestick chart of gold futures. We use two technical studies to extrapolate a forecasting model to predict the future pricing of gold. This study concludes that it is quite possible that by the end of next year gold could trade above its current record high of $2088. The two studies used are Elliott wave theory and a Fibonacci extension.

Elliot Wave Theory and Fibonacci Analysis for Gold

Elliott wave theory was developed by RN Elliott in the 1930s. He assumed that financial markets generally thought to behave in a somewhat random manner, in fact, trade in a repetitive pattern.

According to Investopedia, “Fibonacci extensions are a tool that traders can use to establish targets or estimates how far a price may travel after a pullback is finished.

Elliott wave bull count

Elliott wave theory creates a count of eight waves to complete the cycle. The first five waves are labeled the motive phase and are composed of three impulse waves (waves one, three, and five) that move in the primary trend direction. In between these waves are two counter waves that move in the opposite direction of the trend labeled waves two and four.

The Elliott wave count in the chart above reveals that we have just completed a corrective fourth wave which concluded at the recent lows of $1621. We then use Fibonacci extensions by measuring the last rally which occurred during the first quarter of gold at $1670 labeled “A” and concludes at $2076 the highest value this year that occurred in March.

We then plot an extension of that rally beginning at the recent lows of $1621 labeled “C”. The extension we have used for the study assumes that the final fifth wave will move gold pricing between the +1.382% ($2181) and+1.618% ($2277) extension.

The price forecast in this article is one of many models which use the same studies with different time cycles as well as projections based on other technical studies. While there are certain limitations in forecasting models based solely on technical studies they can offer insight unavailable to traditional fundamental market analysis.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner

Gold Opened Below the 50-day Moving Average and Broke Strongly to the Upside

Gold Explodes to the Upside

Gold futures basis the most active December contract opened in trading today at $1678. After trading to a low of $1667, December gold broke strongly above the 50-day moving average in a single hour. The first hour of trading in New York contained almost the entire trading range in gold.

One Hour gold chart

In the time of one hour gold made gained $35 starting on the New York open ($1678.0 and one hour later was at $1716.90). For the six hours following gold’s dynamic break to the upside gold consolidated in a very small range trading to a high of $1720.40 and a low of $1712 with little volatility following the dynamic swing.

As of 4:43 PM, EST December futures are currently fixed at $1715.80 after factoring in today’s gain of $35.30 or 2.10%. While the dollar played a small part in today’s solid breakout it only accounted for roughly 25% of the dynamic move witnessed in gold.

Gold vs US Dollar Correlation

The dollar index did trade to a lower low, a lower high, and a lower close than yesterday’s trading range. Currently, the dollar index is down by 0.44% and fixed at 109.505.

Kitco Gold Index

Spot gold is currently fixed at $1712.70 and had a larger price gain than December futures today gaining $37.20. According to the KGX (Kitco Gold Index) traders bidding the precious yellow metal higher accounted for $28.15 with the remaining gain of $9.05 directly attributable to dollar weakness.

Fibonacci Levels and Possible Explanation

One Hour gold chart with Fibonacci levels

On a short-term basis using a one-hour time cycle, we have added a Fibonacci retracement set beginning from the highs set at $1821 concluding at the triple bottom which resides at approximately $1621. The next level of resistance is at the 50% retracement from the data set detailed above at $1621.70. Above that is the 38.2% Fibonacci retracement at $1745.30.

Short-term support begins at the 61.8% Fibonacci retracement which occurs at $1698.10. Major support occurs at the 78% Fibonacci retracement at $1665.60.

Today’s breach above $1700 per ounce was a combination of minor dollar weakness and according to many analysts technical buying based on gold’s oversold pricing.

Inflation Data Will Be Crucial

The real test will occur on Thursday, November 10 when the government releases its latest data on inflation vis-à-vis the CPI index for October.

Federal Reserve Bank of Cleveland’s “Inflation Nowcasting”

The Federal Reserve Bank of Cleveland’s “Inflation Nowcasting” is still predicting that the CPI index will reveal that inflation in October is still projected to come in at 8.09%. However, there has been a slight decline in the November estimates which moved from 8.09% yesterday to 7.99% today. Although it is a fractional decline it might give the Federal Reserve the conviction it needs to see recent rate hikes are beginning to take hold.

However, one possible explanation for today’s swift gains is likely due to the mid-term elections taking place in the United States. Today’s elections could have a profound effect on future fiscal actions of the House and Senate which could pressure the Federal Reserve’s policy.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner

Gold Market Participants Are Bracing for Thursday’s CPI Inflation Data for October

Consumer Price Index Forecasts According to Inflation Nowcasting

While many analysts and market participants are expecting (hoping) that the Federal Reserve will begin a pivot from dramatic and strong rate hikes at each FOMC meeting to a pause in hikes during the first half of next year. The sad truth is that the most accurate and current forecast is indicating that inflation remains entrenched with the CPI above 8% and the PCE above 6%.

The PCE is still three times above the Fed’s target inflation rate of 2%. Americans and global citizens are acutely aware of inflation remains entrenched, persistent, and high as their data comes from the price they are paying for goods and services.

The most current and accurate data on inflation comes from the Federal Reserve Bank of Cleveland’s Inflation Nowcasting. The Federal bank of Cleveland releases estimates or forecasts daily for both the PCE and CPI. The numbers and graphs listed are the latest forecasts by the Fed created today.

According to their website, “The model relies on relatively few variables and is tested using real-time data. The model’s nowcasting accuracy improves as information accumulates over the course of a month or quarter, and it easily outperforms a variety of statistical benchmarks.”

The Federal Reserve bank of Cleveland’s Inflation Nowcasting.

The image above is the latest figures for both November and October 2022. Inflation Nowcasting is currently indicating that the CPI (Consumer Price Index) is up 0.76% month over month for October and 0.71% month over month for the first week of November. It also shows that inflation continues to be persistent and exceedingly hot over 8% with the CPI currently at 8.09% year-over-year for October as well as November.

Gold vs US Dollar Correlation

Gold futures are trading fractionally higher. As of 4:120 PM EST gold futures basis, the most active December contract is fixed at $1678,20 after factoring in today’s net gain of $1.60. Today’s fractional gain would have been a deep decline had it not been for dollar weakness moving gold into the positive today. Gold’s gain was a fractional 0.10% and the dollar index is currently down 0.66% and fixed at 110.04.

Kitco Gold Index

The screen print above was taken at 4:41 PM EST with spot gold currently fixed at $1674.50 which is also a net decline of $-$8.20 today. On closer inspection, the Kitco Gold Index (KGX) reveals that normal trading decreased the cost of gold by $16.95, and a weak dollar added +$8.75 $resulting in today’s price decline.

Will The Fed Ease Rate Hikes with 40 Year High Inflation?

It is still early to predict what the Federal Reserve will do at the December 14 FOMC meeting. However, according to the CME’s FedWatch tool, Fed fund futures traders are split almost equally between whether or not the fed will raise rates by 50 or 75 basis points.

There is a 52 % probability that the Federal Reserve will raise rates by 50 basis points and a 48% probability that the Fed will raise their benchmark rates by 75 basis points. This would take the benchmark rate to between 425-450 basis points or between 450 – 475 basis points if the Fed raises rates by 75 basis points.

Regardless of what actions the Federal Reserve does at their next FOMC meeting, one thing is exceedingly clear; after five consecutive rate hikes at every FOMC meeting since March inflation according to the CPI remains above 8%. It is difficult to perceive that the Federal Reserve will begin to pause or ease interest rate hikes as long as inflation remains at a 40-year high.

For those who would like more information simply use this link.

Wishing you as always good trading and good health,

Gary S. Wagner

Gold Began November Like a Lamb but May End Like a Lion

There is a proverb about the weather in the northern hemisphere as each year winter transitions into spring. The proverb says that “March comes in like a lion and goes out like a lamb”. While the proverb began as a reference to astronomy, referring to the position of the constellations Leo-a lion, and Aries the ram, it eventually evolved into a summation about how typically March is the month when the Winter season ends and Spring begins.

Based on recent events involving the Federal Reserve we could extrapolate that in November gold began like a lamb with a declining price and looks like it could end like a lion. Gold, certainly looked as though it began the month of November and continues to trade under pressure to lower pricing.

Actions by the Federal Reserve certainly took on an aggressive hawkish stance when on Wednesday of this week the Fed concluded its November FOMC meeting and as expected raised their benchmark rate by 75 basis points for the fourth consecutive time.

This takes its fed funds rate to between 375 and 400 basis points. The net result was an extremely volatile day in gold with the most active December contract trading to a high of approximately $1673 a low of $1637.80 closing almost exactly where it opened at $1650.

During the press conference held a one-half hour after the meeting concluded Chairman Powell made it clear that the “ultimate level” of interest rates would likely be higher than previously thought adding that he believed that the window for a soft landing has significantly narrowed.

The Dollar Has a Significant Decline in Value and Gold Has an Exceedingly Strong Gain

The idea that gold would have tepid in meek performances characterized by trading sideways or losing value was put to rest at least for today after the U.S. Labor Department released its nonfarm payroll jobs report today.

The report revealed that the U.S. economy is strong gaining 261,000 new jobs in October. The actual numbers came in well above estimates by the Wall Street Journal forecasting that only 205,000 jobs would be added last month. However, the report also showed a dramatic uptick in the U.S. unemployment rate now at 3.7%.

Gold futures daily chart

And it was the rising unemployment rate that was the underlying force that broke the downward momentum of gold and the upward momentum of the U.S. dollar because it spurred the belief that the exceedingly hawkish monetary policy of the Federal Reserve might begin to enter a new slower pace of rate hikes.

US Dollar Index FX Empire

The U.S. dollar had significant declines totaling 1.92% with the dollar index currently fixed at 110.64. But it was gold and silver that had a stellar performance today with gold gaining 3.12%, resulting in a $50.80 gain in the most active December contract which is currently fixed at $1680.20. December silver shined even hotter gaining 7.64% and after factoring in today’s gain of $1.485 is now fixed at $20.915.

Silver futures daily chart

This change in market sentiment is reflected in the CME’s FedWatch tool which predicted a 35.2% probability that the Fed’s benchmark rate would be between 425 and 450 basis points one month ago on October 4. Currently, this probability indicator suggests that there is a 61.5% probability that by the end of 2022 benchmark interest rates will be between 4 ¼% and 4 ½%.

However, expectations that the Federal Reserve will slow down the magnitude of the upcoming rate hikes do not suggest that the Fed won’t take interest rates higher. It is been suggested by economists, analysts as well as Federal Reserve members that it is realistic to anticipate that the Fed’s benchmark rate will move as high as 5% to 5 ½%. It is widely accepted that market participants are already beginning to factor rates at 5% or higher into current pricing.

But Wait There’s More

Lastly, there is an upcoming report that could easily have significant input on the Fed’s decision in December and that is next week’s CPI inflation report. On Thursday, November 10 the Bureau of Labor Statistics will release its most current data on “headline” inflation or the Consumer Price Index.

An article titled, “Octobers CPI number could be significantly lower than expected” in Forbes magazine today estimated that the CPI inflation index could easily decline by a small amount from September’s 8.2% year-over-year to 8%. This is based on the Federal Reserve bank of Cleveland’s “Inflation NowCasting”.

If we do see a small decline in inflation next week that could propel gold to move past its current resistance of $1685 taking the precious yellow metal to challenge $1700 once again.

For those who would like more information simply use this link.

Wishing you as always good trading and good health,

Gary S. Wagner

Why Would the Fed Scale Back Rate Hikes as Core Inflation Continues to Rise?

PCE Still High Despite Rate Hikes

With the November FOMC meeting concluding tomorrow many analysts and news sources are reporting the possibility that the Federal Reserve will announce or at least give subtle hints that they might begin to scale down their aggressive stance on interest rate hikes.

If the Fed announces or suggests that they will begin to slow down the magnitude and pace at which they implement further rate hikes they are doing so when the latest data suggests that the core PCE inflation index continues to rise.

The most recent inflation report revealed that the core PCE index jumped 5.1% in September year-over-year which is the fourth-highest reading in this cycle behind January, February, and March. The Federal Reserve is still quite a way away from reaching its benchmark level of inflation at 2%. To put it bluntly, inflation shows no signs of slowing down as measured by their preferred index; the core PCE.

Over the last five FOMC meetings, the Fed has implemented five consecutive rate hikes beginning with a ¼% rate hike in March, and a ½% rate hike in May which was followed by three consecutive ¾% rate hikes in June, July, and September. It is widely anticipated that the Fed will raise rates by ¾% for a fourth consecutive time at the conclusion of tomorrow’s FOMC meeting.

The net outcome of all these hikes is the benchmark rate going from between 0 and ¼% in March to between 3% and 3 ¼% in September.

Rate Hikes Were Toxic for Gold

US Dollar vs Gold

The net result of the Federal Reserve’s aggressive monetary policy has brought about an extremely strong demise in the price of gold. Since the first rate hike by the Federal Reserve in March gold has fallen from its yearly high of $2078 to a double bottom that occurred at the end of September and last month in which gold futures traded to an intraday low of $1621. Gold has declined in value by approximately 22% from the yearly high to the yearly low.

Fed Losses May Be Behind Potential Pivot

One possibility as to why the Federal Reserve is choosing to pivot its pace of rate hikes is the fact that the Federal Reserve is now losing billions of dollars based on the current benchmark interest rate of 3% to 3 ¼%. On October 25 Bloomberg news published an article titled, “Fed Is Losing Billions, Wiping Out Profits That Funded Spending”.

In this article penned by Enda Curran, Jana Randow, and Jonnelle Marte they distinctly discuss the implications of the hawkish monetary policy by the Federal Reserve saying, “The bond market is enduring its worst selloff in a generation, triggered by high inflation and the aggressive interest-rate hikes that central banks are implementing. Falling bond prices, in turn, mean paper losses on the massive holdings that the Fed and others accumulated during their rescue efforts in recent years.”

Fed losses

The article says that the recent rate hikes also involve central banks paying out more interest on the reserves that commercial banks park with them. The net result according to this article is higher rates “tipped the Fed into operating losses, creating a hole that may ultimately require the Treasury Department to fill via debt sales. The UK Treasury is already preparing to make up a loss at the Bank of England.”

The outcome of their actions has led to huge operating losses or mark-to-market balance sheet losses which are now materializing. “Fed remittances owed to the US Treasury reached a negative $5.3 billion as of Oct. 19 — a sharp contrast with the positive figures seen as recently as the end of August. A negative number amounts to an IOU that would be repaid via any future income.”

It seems quite plausible that the Federal Reserve does not wish to incur larger losses which would be a perfect explanation for their monetary policy pivot at a time in which they have come nowhere near reaching their inflation target of 2%.

Gold Today

Gold daily chart

As of 5:55 PM EST gold futures basis, the most active December contract is fixed at $1651 and is exhibiting the first gains in the last four trading days after factoring in today’s increase of $10.30.

For those who would like more information simply use this link.

Wishing you as always good trading and good health,

Gary S. Wagner

European Inflation Hits 10.7%, Gold on the Longest Monthly Decline Since 1968

Inflation Soars in Europe

In Europe, it was just reported that preliminary data from Europe’s statistics office revealed that headline inflation came in at an annual 10.7% this month. CNBC said, “This represents the highest ever monthly reading since the euro zone’s formation. The 19-member bloc has faced higher prices, particularly on energy and food, for the past 12 months.”

The article also said that Preliminary data on Monday from Europe’s statistics office showed headline inflation came in at an annual 10.7% this month. This represents the highest-ever monthly reading since the euro zone’s formation. The 19-member bloc has faced higher prices, particularly on energy and food, for the past 12 months. But the increases have been accentuated by Russia’s invasion of Ukraine in late February.”

Energy costs for example are expected to have the highest annual rise in October coming in at 41.9% an increase from September’s energy inflation which came in at 40.7% in the prior month. Food, tobacco, and alcohol prices also increased from 11.8% on September 2 to 13.1% in October.

Some countries in the Eurozone have exceeded even 10% inflation with Italy’s inflation rising above 12% this month. France reached only 7.1%, however, Germany acknowledged that inflation had hit 11.6%. Although the average is just below 11% Estonia, Latvia and Lithuania saw an inflation peak above 20% in October.

High Inflation Means Higher Rates

This news will certainly result in the European Central Bank dramatically pivoting from its current monetary policy to a much more aggressive monetary policy including larger rate hikes in the upcoming months to try to curtail spiraling inflation in Europe.

The Federal Reserve’s November FOMC meeting begins on Tuesday and concludes on Wednesday. The conclusion will be followed by the release of the FOMC statement along with a press conference by Chairman Jerome Powell. It will likely include another 75-basis point interest rate hike and a more hawkish tone than previously seen by members of the Federal Reserve.

Higher Rates Mean a Stronger Dollar and More Pain for Gold

Gold daily chart

All of this news has bled into the price of gold taking it lower.

With the end of October at hand traders and market participants have witnessed something not seen since 1968 which is seven consecutive months in which gold has closed lower. This is certainly a dramatic selloff that could continue as long as central banks raise rates and in the United States, the dollar stays strong. As of 5:50 PM, EDT gold futures basis most active December contract is down $8.40 and fixed at $1636.40.

US Dollar vs Gold chart

For those who would like more information simply use this link.

Wishing you as always good trading and good health,

Gary S. Wagner

Core Inflation Remains Persistent Which Pressures Fed to Continue Large Rate Hikes

Latest Inflation Data Remains High

The report revealed what Americans already know, that the cost of goods and services remains exceedingly.

According to the BEA, “The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.5 percent. Real DPI increased less than 0.1 percent in September and Real PCE increased 0.3 percent; goods increased 0.4 percent and services increased 0.3 percent.”

The PCE remains elevated at 6.2% year-over-year the same as in the prior month (August). More so, the core PCE which excludes food and energy costs rose from 4.9% in August to 5.1% in September.

In other words, after the Federal Reserve raised their benchmark rates by 25 basis points in March, 50 basis points in May, and 75 basis points in June, July, and September, meanwhile the core PCE which was at 4.9% in May, rose to 5% in June and is now at 5.1% in September. The only months in which the core PCE had any reduction were in July and August, and those reductions in inflation were short-lived as the core PCE was higher in September than any other month since May.

This will be the most recent data that the Federal Reserve will have on inflation and therefore will seal the fate of the Federal Reserve implementing a 75-basis points rate hike at next week’s FOMC meeting. It also increased the likelihood of the Federal Reserve raising rates by 75 basis points in December.

According to the CME’s FedWatch tool, there is a 43.1% % probability that the Federal Reserve will raise its benchmark rate by 75 basis points in December, this is an increase from yesterday’s probability prediction of 34.1%. This would take the Feds benchmark rate to between 450 and 500 basis points by the end of 2022.

However, today’s report came in below expectations predicted by Bloomberg News. Their survey predicted that the PCE Index would come in at a 6.3% rise in September year-over-year.

PCE Impact on US Dollar and Commodities

The PCE report did not have a large impact on the U.S. dollar. As of 5:20 PM EDT, the dollar index is currently trading fractionally higher by 0.09% and fixed at 110.555. The report, however, did have a strong impact on U.S. Treasuries futures with the 30-year bond increasing by 0.90% yielding 4.129%, and the 10-year note gaining 1.85% taking its yield to 4.01%.

Gold daily chart

The report resulted in strong selloffs in the precious metals across-the-board. As of 5:20 PM EDT gold futures basis, the most active December contract is fixed at $1648.30 after factoring in today’s net decline of $17.30. Today’s strong decline in gold was almost entirely based on selling pressure from market participants. Silver futures basis the most active December 2022 contract lost 1.51% or $0.29 and is currently fixed at $19.20. Palladium futures lost $37 or 1.92%, and platinum futures gave up $17.90 or 1.85%.

Kitco Gold Index

Spot gold declined by $18 and is currently fixed at $1645.70. According to the Kitco Gold Index selling pressure by market participants took physical gold $16.50 lower and fractional dollar strength caused physical gold to lose an additional $1.50.

The Good and Bad and the Ugly of This Week’s GDP and Inflation Report

The bad is that today’s report sent a clear message; rate hikes enacted by the Federal Reserve this year have had profoundly little impact on the cost of goods and services and inflation continues to remain persistent at a 40-year high.

The good is that yesterday’s 3rd Q GDP revealed that our economy is once again growing and has not been severely hindered by the Federal Reserve’s interest rate hikes.

The ugly truth, therefore, become that the Federal Reserve will continue and maybe even increase the size of their rate hikes to a full 1%.

For those who would like more information simply use this link.

Wishing you as always good trading and good health,

Gary S. Wagner

 Friday’s Inflation Report Has Investors Bracing for Volatility

The PCE Index and the Next Federal Reserve Rate Hikes

This will be the most recent data that the Federal Reserve will have on inflation and therefore be a key component to their sealing the fate of the size of the next rate hike at next week’s FOMC meeting.

According to the CME’s FedWatch tool, there is an 88 % probability that the Federal Reserve will raise rates by 75 basis points, this is a decline from yesterday’s 92.5% probability prediction. This would take the Feds benchmark rate to between 375 and 400 basis points at next week’s Federal Open Market Committee meeting.

According to Bloomberg News economists surveyed are predicting that the PCE Index is forecast to show a 6.3% rise in September from a year ago.

“Excluding food and energy, the gauge is expected to have climbed 0.5% from August and 5.2% from September 2021. The elevated projections follow government figures from earlier this month showing a key measure of core consumer prices accelerated in September to a 40-year high.”

In an article penned by Jessica Menton of Bloomberg News, the most pivotal question facing investors and traders is “whether decades-high inflation is nearing a peak or if prices are going to keep rising … Traders are closely watching the Federal Reserve’s preferred measure of inflation — the personal-consumption expenditures price index — because it will help determine if the central bank moves ahead with another 75 basis-point interest-rate increase at its meeting next week.” Although her article was focused on Wall Street and stock investors her statements offer articulate insight into other asset classes including gold and silver.

Thomas Martin, senior portfolio manager at Globalt Investments said, “The Fed is laying the groundwork to stop having outsized rate increases if the inflation data supports that. But if it doesn’t, they’ll be ready to continue with big hikes beyond November.”

Gold vs US Dollar Correlation

Gold futures daily chart

As of 5:20 PM EDT gold futures basis, the most active December contract is fixed at $1667.40 after factoring in today’s net decline of $1.80. However, unlike previous trading days, today’s dollar strength had a negative correlation with gold prices. The dollar rose by 0.79% with the dollar index currently fixed at 110.42. This means that the fractional decline in gold would’ve been much larger had the dollar not gained approximately 8/10 of a percent of value.

Kitco Gold Index (KGX)

Spot gold is currently fixed at $1663.70 which is also a net decline of $1.80 today. On closer inspection, the Kitco gold index (KGX) reveals that normal trading increased the cost of gold by $11.85, and dollar strength took away $13.65 resulting in today’s fractional price decline.

US Dollar daily chart

US Debt, GDP and Gold

Market participants are also factoring in how the Federal Reserve will factor in today’s government report that showed that third-quarter GDP rose 2.6% versus the estimate of 2.3%, growing faster than expected. The report revealed that the U.S. economy had its first period of positive growth this year. This caused gold prices to decline after the release of today’s Q3 GDP report. Gold futures traded to a high of $1674.80 today.

Included in today’s Q3 GDP report was the most current data on the annualized federal interest payments indicating that it has increased to $736.5 billion. This set a new record for annual interest payments on our national debt.

According to the US Debt Clock, our national debt is currently above $31 trillion and unsustainable. Higher levels of interest set by the Federal Reserve only exacerbate that problem. However, the current level of national debt and the high cost of servicing just the interest creates extremely bullish market sentiment for gold.

For those who would like more information simply use this link.

Wishing you as always good trading and good health,

Gary S. Wagner

Gold Has Respectable Gains, but Still Based on Dollar Weakness and Not Buying

Gold vs US Dollar Correlation

Gold futures daily chart

Gold futures basis the most active December 2022 Comex contract is currently up $11.20 and fixed at $1669.70. Noteworthy was today’s intraday high of $1679.40 which came in just below the first level of resistance at $1680. However, once again we can see that while gold’s gains are respectable, they are based entirely upon dollar weakness. Furthermore, market participants bid the precious metal lower.

US Dollar Index futures daily chart

According to Reuters, “Gold prices rose to a two-week high on Wednesday as the dollar and U.S. bond yields slipped on expectations the Federal Reserve will temper its aggressive rate-hike stance starting December.”

Kitco Gold Index

As of 4:05 PM EDT, the dollar index is down 1.290 points or 1.16% and fixed at 109.54. The lack of market participants bidding gold higher can be seen through the eyes of the Kitco Gold Index (KGX). The screen print above of the KGC was taken at 3:53 PM EDT and shows spot gold was currently fixed at $1665 with a net gain of $11.90. However, as we have seen on multiple occasions recently it was dollar weakness that moved spot gold pricing up by $17.20, and selling pressure taking gold lower by $5.30.

Next Rate Hikes Probabilities and Key Macro Data

This clearly shows that market participants continue to have their primary focus on the pace and magnitude at which the Federal Reserve continues to raise interest rates. It is widely accepted that the Federal Reserve will raise rates by 75 basis points in November and for the most part, has already been factored into current market pricing. 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% probability that the Federal Reserve will raise rates to between 425 and 450 basis points, and a 37.7% probability that they will raise rates to between 450 and 475 basis points in December.

FedWatch tool for December 2022

In February 2023 there is no decisive consensus about the size of the rate hike. According to the CME’s FedWatch tool, there is a 26.8% probability that the Federal Reserve’s benchmark rate will be between 450 and 475 basis points, a 42.4% probability that the fed funds rates will be 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.

FedWatch for February 2023

The uncertainty in regards to the magnitude of upcoming rate hikes is directly related to anticipating how the Federal Reserve’s will be modified as more data becomes available to them. This week there will be critical reports that will help shape the Federal Reserve’s decision on rate hikes in both November and December.

On Thursday the government will release its data on the third quarter GDP as well as updated figures on the national debt of the United States. On Friday the government will release its report on the core inflation numbers or PCE. This could provide key and important data that will guide what upcoming actions of the Federal Reserve might be.

The most important question is while economists and analysts are expecting to see an economic contraction based upon the rapid rate hikes that began in March. However, how inflationary pressures will react if we don’t see a reduction in inflation following five consecutive rate hikes by the Federal Reserve this year?

The fear remains that after all of the rate hikes by the Federal Reserve Friday’s report reveals it had only a nominal effect on lowering inflation.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner

Gold’s Tepid Response to Dollar Weakness and Geopolitical Uncertainty

Minimal Gains on Gold Despite Dollar Weakness

Gold futures daily chart

One might think that with the increased geopolitical uncertainty and recent dollar weakness that gold would have strong gains. However, that is absolutely not true in trading today. As of 5:15 PM EDT, the most active December contract of gold futures is currently up only $3.30 or +0.20% and fixed at $1657.40.

Kitco Gold Index

Fractional gains in gold today have occurred with extreme dollar weakness. The U.S. dollar index is currently down -1.02% and fixed at 110.77. To illustrate gold’s weakness in light of dollar weakness we simply need to compare spot gold pricing and dollar weakness through the eyes of the Kitco Gold Index (KGX).

US Dollar daily chart

Currently, spot gold is fixed at $1653.10 which is a net gain of $3.40. On closer inspection, we can see that dollar weakness has added +$16.80, and normal trading has resulted in a decline of -$13.40 resulting in today’s tepid gains.

Geopolitical Uncertainty Escalates to an Exceedingly High Level

On top of today’s weak U.S. dollar which has added significant value to gold, the world is facing an escalating level of geopolitical uncertainty in both North Korea as well as the war in Ukraine.

On Tuesday the President of South Korea Yoon Suk-Yeol said that North Korea has completed its initial preparations for its seventh nuclear test. As reported by Bloomberg News the president of South Korea told his Parliament on Tuesday, “We assess that it has already completed preparations for a seventh nuclear test,”.

The threat of nuclear tests by North Korea is only part of a much more complex geopolitical framework. The article in Bloomberg News articulated the complexities of the current geopolitical environment saying, “The US push to isolate Russia over Vladimir Putin’s war in Ukraine, coupled with increasing animosity toward China, has allowed Kim to strengthen his nuclear deterrent without fear of facing more sanctions at the UN Security Council”.

There are also reports that Russia is planning a false flag attack. On Monday Putin and the Kremlin claimed that Ukraine was planning to use a radioactive “dirty bomb” against Russian forces. Putin has used “false flags” before as a rationale to escalate Russia’s military operations. This has raised concern that the Russian president is creating a narrative in which he will escalate the war in Ukraine to include tactical nuclear weapons or a dirty bomb to preempt Ukraine from using a “dirty bomb”.

On Tuesday Air Force Brigadier General Patrick Ryder said, “From a US standpoint, the allegations that Ukraine is building a dirty bomb are false.”

Today President Biden said that Russia would be making a “serious mistake” by launching a “false flag” nuclear attack in Ukraine and that it’s unclear if such an operation was underway.

With today’s backdrop of extreme dollar weakness giving up more than 1%. As well as an extreme escalation of geopolitical uncertainty from North Korea and the fact that gold is only up $3 clearly illustrate that gold is currently not reacting as a safe haven asset.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner