Inflation at a 40-year High, Risk-off Market Sentiment, and Geopolitical Uncertainty Create a Perfect Storm Scenario for the Precious Metals

Three primary concerns have elevated the bullish market sentiment that has already been in play in the precious metals markets, today however it seemed as though these concerns were magnified.

The primary concern is the current level of inflation in the United States which according to the most recent data provided by the government is at 7%. The last time inflationary pressures were this high was in 1982, 40 years ago. Also, market participants are focusing on inflationary concerns in regards to upcoming action by the Federal Reserve at the upcoming FOMC meeting which will begin on Tuesday, January 25, and conclude exactly a week from today. Lift-off, a term used to describe the initiation of interest rate hikes is almost a certainty.

Fedwatch tool

It is assumed that the Federal Reserve will announce the date they will begin lift-off at next week’s FOMC. According to the CME Group’s FedWatch tool, the probability that the first-rate hike will occur in March of this year is 94%.

Unquestionably, U.S. corporations have become addicted to borrowing money for free. The realization that this monetary policy that was enacted by the Federal Reserve to rebuild the economy in the United States is coming to an end is now sinking in. U.S. equities have been under pressure and trading to lower values for four out of the last five trading days.

In the case of the NASDAQ composite since January 12, the tech-heavy index has lost just over 6% in value. The Standard & Poor’s has lost approximately 4.2% of value, and the Dow Jones industrial average has declined by approximately 3.61%.

Lastly, although only a small component of the recent shift in market sentiment of both U.S. equities and the precious metals markets is the geopolitical tension that is building as Russian troops continue to mount on the border of Ukraine.

Any of these three factors could have a dramatic impact on market sentiment for both U.S. equities and the precious metals markets. However, the combination of all three factors existing simultaneously has created a perfect storm environment moving the precious metals dramatically higher today.

Palladium gained 5.09% in trading today the largest percentage gain of the four precious metals traded on the futures exchange. After factoring in a gain of $96.90 palladium futures are currently fixed at $2001.50. Platinum futures gained 4.58% and after factoring in today’s gain of $44.90 is currently fixed at $1024.40. Silver futures gained 2.99% taking the most active March futures contract to $24.195, after factoring in today’s gain of $0.70. Lastly, gold futures basis the most active February contract is currently fixed at $1840.70 after gaining $28.30 or 1.56%.

Gold daily chart 19.01.22

All of the precious metals had strong upside breakouts today with gold blowing past the current resistance level of $1833. Our technical studies currently indicate that the next level of resistance comes in at $1851.60. The studies also indicate that the former resistance level could become the new support level at $1830.

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

Wishing you as always good trading and good health,

Gary S. Wagner

 

Investors Focus on the Next FOMC Meeting, 10-year Treasuries and Dollar Strength

This month’s FOMC meeting is scheduled to begin one week from today, on January 25, and conclude on the following day.

U.S. equities vis-à-vis the Dow Jones industrial average had its strongest decline this year. The Dow lost 542.42 points, a decline of 1.51%, and is currently fixed at 35,369.39 points. Yields on the U.S. 10-year Treasury Note gained 10.5 basis points taking the current yield to 1.877%, the highest level since January 2020. The 30-year Treasury bond gained 7.7 basis points taking the yield to 2.192%. The short-term two-year Treasury Note yield broke above 1%, the first occurrence of short-term treasury yields at this level in two years. Lastly, the U.S. dollar rose sharply in trading today, gaining 0.66% or 0.629 points taking the dollar index to 95.78.

U.S. equities, Treasury yields, and the dollar all reacted to the assumption that market participants are anticipating that the Federal Reserve will begin an aggressive series of rate hikes tightening their current accommodative monetary policy to curtail the spiraling level of inflation, which is currently fixed at 7% based upon government data released last week vis-à-vis the CPI (consumer price index).

On Tuesday, January 11, Chairman Jerome Powell speaking before the Senate banking, housing and urban affairs committee in regards to his re-nomination, said, “As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year. At some point perhaps later this year, we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy.”

The Fed Chairman acknowledged that the Federal Reserve had greatly underestimated the speed at which inflationary pressures have risen and indicated that the monetary policy of the Federal Reserve needed to pivot in regards to their dual mandate, which had been focusing on maximum employment in lieu of their acceptable inflationary target of 2%.

The chairman said that it is appropriate to focus upon inflationary pressures at this point. As such, the expectations of rate hikes this year have dramatically changed, with market participants now factoring in three or four interest rate hikes this year.

Although multiple asset classes had strong reactions to the possible actions of the Federal Reserve next week, it was dollar strength that most affected gold prices today. As of 4:25 PM EST, gold futures basis, the most active February 2022 Comex contract, had a modest to fractional decline resulting in a loss of $3.10 or 0.17% and is currently fixed at $1813.30.

Gold daily chart

However, the three other precious metals which trade on the futures exchange all had moderate to strong price gains. Silver led the way with the most active March contract gaining 2.63%, fixing current pricing to $23.52. Platinum gained 1.58%, a net gain of $15.20 with the most active March 2022 futures contract fixed at $979.80, and lastly, palladium gained 1.11%, taking the most active March contract to $1899.

Kitco Gold Index

Gold pricing actually had fractional gains before factoring in dollar strength. This can be clearly illustrated by the KGX (Kitco gold index). As of 4:28 PM, EST spot gold is currently fixed at $1813.60, based upon normal trading adding $4.00 worth of value and dollar strength taking away $9.60.

Our technical studies indicate that the low achieved today in February gold futures which occurred at $1804.70, is just above a key and critical support level, which is based upon the 61.8% Fibonacci retracement level fixed at $1804.60. Our studies also indicate that current resistance is at $1833.30, ,mkbased on a 38.2% Fibonacci retracement level. The data set used for our retracements begins at $1758, the low of November 3, and concludes at $1879.50, the highs achieved on November 16.

Wishing you as always good trading and good health,

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

Gary S. Wagner

Gold Has Gained Value During 4 of the Last 5 Weeks

Gold daily chart

Gold continues to trade in a range-bound manner, but over the last five weeks, gold prices have gained value during four of those weeks. Although gold has traded lower yesterday and today, ending the week with a moderate gain of 0.6%. For the most part, we have seen gold trade through the eyes of the weekly chart with a succession of higher lows. What has been lacking is a series of higher highs based upon the high achieved in June 2022 when gold topped out at $1920.

KGX Index

U.S. equities had mild to moderate gains, with both the Standard & Poor’s 500 and the NASDAQ composite closing higher on the day. However, the Dow Jones industrial average did close lower by 0.56%.

For the most part, market participants and analysts have factored in a much more aggressive Federal Reserve with the anticipation of three or four interest rate hikes this year. The current assumption based on information released from the Federal Reserve is that each rate hike will be ¼%. That means that if they move forward with this more aggressive monetary policy, they will raise rates only 1% this entire year which would take the Fed fund rate from its current fix of zero to ¼%. This means that by the end of 2022 fed funds rate would be fixed between 1% and 1 ¼%.

With recently released data in regards to current inflationary pressures, the Bureau of Economic Statistics has confirmed what analysts and Americans have known for quite some time, and that is that inflationary pressures continue to spiral to higher levels with the CPI (consumer price index) now fixed at 7% in December year over year.

This brings us to the current dilemma faced by the Federal Reserve. The Federal Reserve’s more hawkish or aggressive monetary policy cannot curtail the current rise of inflationary pressures to any great degree. Many analysts, including myself, acknowledge that the Federal Reserve’s Monetary Policy as it stands with a more hawkish demeanor cannot have any dramatic effect on the cost of goods and services by themselves. Any real hope of seeing inflationary pressures diminish must be accomplished through a combination of actions by the administration as well as the monetary policy of the Federal Reserve.

As the data has clearly illustrated, the current level of inflation is based upon the high pent-up demand during the first year and ½ of the recession which in essence began in March 2020. As we approach the second anniversary of the onset of the recession, which is a direct result of a global pandemic in many ways, we are much closer to understanding the new Covid-19 virus.

However, that understanding has indicated that we are far from having any real handle on eradicating the virus. What is happening is that the virus has had a global impact as new waves created by mutations or variants of the original virus strain continue to wreak havoc on economies worldwide. It seems as though the question of what a new normal will look like at the end of the pandemic contains the real possibility that there will not be a conclusion or a point in time when the Covid-19 virus simply does not exist. Rather it is beginning to seem likely that global citizens health organizations and countries will learn more effective measures to deal with the rapid spreading of variants as they emerge.

This might mean that we are currently experiencing the new “normal,” and life, as we know it from the pre-pandemic days, will never completely return. As such people will continue their daily lives with this issue and learn to adapt to it.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

U.S. Equities and Precious Metals React to the Real Possibility of Liftoff in March

Testimony by Chairman Powell recently suggested that the Federal Reserve might maintain a slightly more accommodative monetary policy than perceived by the hawkish tone of multiple Fed members including himself last month. However, statements over the last few days by multiple Federal Reserve members suggest that liftoff will most certainly begin in March 2022.

By far the largest percentage declines amongst asset classes was seen in U.S. equities rather than the precious metals. The Standard & Poor’s 500 gave up 1.42%, the Dow Jones Industrial Average, which fared the best today, gave up 0.49%. But it was the NASDAQ composite that showed the largest percentage decline today, losing 2.51% in value.

Precious metals had fractional declines, but all four precious metals traded on the futures markets exhibited slight declines. Concurrently the U.S. dollar had a fractional decline today of 0.06% taking the dollar index to 94.845. This is the lowest value that the dollar index has had since the first week of November 2021. After reaching a high just shy of 97.00 in December of last year the index traded to a low of 94.635 which is approximately a 2% decline from the highs seen just last month.

The precious metal which had the greatest percentage decline today is palladium which lost 1.56%, or $29.80, with the most active futures contract currently fixed at $1886. Platinum came in just behind palladium, declined by 1.30% or $12.70 with the most active futures contract currently fixed at $967.40.

Silver lost 0.37%, losing approximately $0.09 on the day with the most active March 2022 Comex contract currently fixed at $23.12. It was gold that fared the best declining by 0.27% or $4.90 with the most active February 2022 Comex contract currently fixed at $1822.40.

Gold daily chart

Today the government released the producer price index which showed that wholesale prices rose 0.2% in December. Although this is the smallest increase in wholesale prices in the last 13 months, it came in below the forecast of economists polled by Wall Street Journal than anticipated that the PPI would show an increase of 0.4%.

Many analysts interpreted today’s data as a potential peak in inflationary growth as wholesale prices only had a modest uptick. However, what many analysts are disregarding is that even though wholesale prices only increased by 0.2%, today’s data reveals that inflation continues to grow. While the growth of inflation might be slowing down, it is slowing down at a point when the overall inflation is sitting at a 40 year high.

According to yesterday’s release of the December consumer price index current level of inflation across the board is at an astoundingly high 7% and the inflation level has not been seen since 1982. Understandably, U.S. corporations have become addicted to borrowing almost free money. It makes logical sense that once the Federal Reserve begins to raise rates, they would be extremely sensitive to a higher cost of borrowing.

If you look at points in time when the United States had major bouts with high inflation, it was typically a multi-your process to bring inflationary pressures back to an acceptable target. It was also accomplished by extremely high-interest rates. I bring this point up because a rise in the Federal funds rate of 1% will not have a large impact on bringing inflationary pressures down.

To bring in the inflation rate from 7% down to even 3% will require more than just hikes and interest rates. It will require real solutions to the issues that created the high level of inflation in the first place. In the case of our current dilemma, it is the lack of available workers to fulfill the needed roles to alleviate the bottlenecks supply chain issues that are one of the core reasons inflation has run rampant. Higher interest rates will not solve the problem of the United States having maximum employment, and in fact, could easily have the opposite effect.

That being said inflation is here to stay for an extended period. Many analysts including myself, believe that it is highly unlikely that inflation will move to an acceptable target level in 2022, and in a best-case scenario will not move to an acceptable level till the middle or end of 2023. It is for those reasons mentioned above that the long-term forecast for gold could easily continue to have bullish market sentiment as its major undertone.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

Gold Unfurls All of Its Sails to Capture Strong Tailwinds From Dollar Weakness

Gold January 12

As of 5:45 PM EST gold futures basis, the most active February 2022 contract is currently trading up by seven dollars, a gain of 0.38% and fixed at $1825.30. Yesterday’s double-digit gain in gold pricing which opened at $1801.40, traded to a high of $1822.90, and then settled just below yesterday’s high at approximately $1818 was in anticipation that today’s CPI index would reveal that inflation continues to expand. The dollar lost just over 0.7%, giving up 0.67 points, and is currently fixed at 94.955.

The U.S. dollar sold off strongly today as the Bureau of Labor Statistics released the most current data on inflation which showed that inflationary pressures continue to grow, now at the highest level we have seen in 40 years. Today’s inflation report revealed that the current level of inflationary pressures is now at a 40 year high, with the last occurrence of inflation at these levels occurring in June 1982.

The U.S. Bureau of Labor Statistics reported the following, “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in December on a seasonally adjusted basis after rising 0.8 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 7.0 percent before seasonal adjustment.”

The largest contributors to inflationary pressures continues to be the cost of shelter as well as used cars and trucks. The report also indicated that the food index, although it increased less than in recent months still rose 0.5% in December.

The core CPI index which strips out food and energy costs is still the preferred inflationary barometer used by the Federal Reserve. The report indicated that all items with the omission of food and energy indexes rose 5.5%, “the largest 12-month change since the period ending in February 1991.” The energy index rose 29.3% over the last year with food costs increasing by 6.3% during the same period.

With inflation at these historical levels, it will not be an easy or short-term project for the Federal Reserve to halt its dramatic increase. Actions by the Federal Reserve can only do so much to alleviate the spiraling level of inflation. One of the primary causes of the recent inflationary pressures is supply chain bottlenecks and shortages.

These bottlenecks are largely a byproduct of the shortage of workers. This worker shortage can be seen in factories producing the goods. It is also prevalent in those workers that are responsible for different components of the distribution. As long as there is a shortage of workers to produce the goods, unload the boats, and truckers to move the goods there will continue to be supply chain bottlenecks and shortages.

If gold continues to gain value as I believe it will, it will not encounter any of the technical resistance occurring at $1833.40, which corresponds to a 38% Fibonacci retracement. Above that resistance can be found at $1851.60 the 23% Fibonacci retracement. Major resistance occurs at $1879.50 which is based upon the high achieved on November 16 of last year.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

Chairman Powell Admits, “Inflation is running very far above target”

While it seemed obvious to most economic analysts as well as everyday citizens that inflationary pressures have been running rampant, out-of-control continuing to spiral to higher levels, the Federal Reserve for too long maintained its stance that rises in inflation were transitory and would quickly subside. To add insult to injury Chairman Powell in testimony during a congressional hearing to confirm his confirmation earlier today for a second term, continued his doctrine that inflationary pressures will ease by the middle of this year.

Economic forecasts for tomorrow’s core CPI index (Consumer Price Index) are expecting that the core CPI, which strips out food and energy costs, will gold from 4.9% in November to 5.4% in December. More alarming is the CPI index which contains data for rising energy and food costs are anticipating that the current level of inflation in December will reach 7% year-over-year, a 0.2% increase from November’s actual numbers of 6.8%.

During his testimony, Powell said that policymakers were still analyzing different approaches to reducing the Federal Reserve balance sheet and said that inflation is “running very far above target and it is a long road to anything close to a restrictive policy.” In other words, the chairman of the Federal Reserve is still riding both sides of the fence, walking a tight rope in which he believes that the Federal Reserve can curtail the spiraling level of inflationary pressures without causing great economic hardship to the recovery from the recession that has lasted almost two years.

The truth of the matter is that the only tool within the Federal Reserve’s toolbox to curtailing the rise in inflation is to raise interest rates, and rising interest rates intrinsically will curtail any economic expansion that is needed for the United States to achieve a full economic recovery.

Just as the Federal Reserve maintained a stance that the levels of inflation were transitory. They are now trying to convince the American public that the U.S. economy can withstand interest rate normalization and Federal Reserve tightening without affecting job growth which has been tepid at best.

The bottom line is that the Federal Reserve got it wrong and incorrectly diagnosed spiraling inflation as a short-term event. With inflationary pressures near a 40 year high, the balancing act to get inflation under control in a relatively short period is an impossible task without slowing the economic expansion that is currently underway.

Analysts and market participants have already factored in the real potential for three or four rate hikes, raising the fed funds rate by ¼%. By Chairman Powell saying that Fed actions “should not have a negative impact on the employment market” is a statement one might expect to hear from PT Barnum and not the chairman of the Federal Reserve. Traders and market participants are acutely aware of the dilemma faced by the Federal Reserve and moved gold substantially higher today, anticipating that inflation will continue to run at these historically high levels for an extended time.

Gold January chart

As of 5:17 PM EST gold futures basis, the most active February Comex contract is currently up $22.70, a net gain of 1.2% percent, and is fixed at $1821.50. Our technical studies see the next level of resistance should gold continue to rise at $1828.60, with major resistance occurring between $1851 and $1880.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

Inflation & Gold; Both Sides of The Double-Edged Sword Are Razor-Sharp

Currently, that duplicity is acting as a double-edged sword with both sides honed to razor sharpness. On the one hand, as inflation moves higher, it makes gold a favorable asset to hold in your portfolio. It is considered one of the better inflationary hedges.

However, in the case of inflation and interest rates, higher inflation will pressure gold lower based on the fact that it will force the hand of the Federal Reserve to raise rates more aggressively in both how many rate hikes the Federal Reserve will initiate this year and possibly the size of the individual rate hikes.

Currently, market participants are waiting for the release of the U.S. core CPI (Consumer Price Index) on Wednesday. Economic forecasts are predicting a rise to the highest level seen in nearly 40 years. The U.S. core CPI index came in at an unheard-of rate of 4.9% in November of last year.

Economists are predicting that the core CPI will rise to 5.4%. Because the core CPI index strips out the costs of energy and food, clearly two of the most essential goods and services that all Americans depend on, the core CPI is not as realistic as inflationary indexes that contain the inflationary rise in the cost of food and energy.

Forecasts for the CPI, which include food and energy costs are forecast to reflect the fact that inflationary pressures continue to surge causing millions of Americans more of their income for their necessities. In November of last year, government reports indicated that the inflationary rate had climbed to 6.2% after forecasts came in just under at 5.8% for October. In December, analysts were dead on predicting that the CPI would increase from 6.2% to 6.8%.

The inflationary pressures continue to get direr as economists are forecasting yet a higher inflationary level for December of last year of 7%. The last time inflationary pressures ran this high was in the 1980s when inflationary pressures averaged between 13 ½% in 1980, 10.3% in 1981, and 6.1% in 1982.

Gold January 10

While it’s clear that rising inflationary pressures will create bullish and bearish market sentiment for gold, at least for now, there is a slight edge in the bullish camp. As of 5:00 PM EST, gold futures basis most active February 2022 Comex contract is currently up $3.90, a net gain of 0.22% and fixed just above $1800 at $1801.30. Our technical studies indicate that the first level of resistance if gold continues to move higher occurs at approximately $1805 based on a combination of the 61.8% Fibonacci retracement, which is currently at 1804 $4.60, and the 50-day moving average, which is currently fixed at $1805.40. If gold continues to rise above that resistance level, the next area of resistance occurs at approximately $1815 based on a series of tops recently seen in gold pricing.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

Jobs Reports Come in Well Below Forecasts and Support Gold Prices

Economists polled by various news sources predicted that there would be an additional 400,000 jobs added to payrolls last month. The actual number was roughly half of the projected forecast revealing that only 199,000 additional jobs were added.

MarketWatch reported that “The U.S. created a lackluster 199,000 new jobs in December, signaling that persistent labor shortages and another major coronavirus outbreak are holding back the economy. The increase in employment was well below Wall Street’s expectations. Economists polled by The Wall Street Journal had forecast 422,000 new jobs. The U.S. jobless rate, meanwhile, slipped to 3.9% from 4.2% and drifted to a new pandemic low. The rate stood at 3.5% right before the pandemic.”

The United States continues to see the number of daily infections of Covid-19 grow exponentially. The new variant “Omicron” has raised the daily infections in the United States to 1 million daily cases on Monday. This new surge of infections is a major component that continues to create job shortages. It clearly illustrates that the high level of infections is still a major force that is disrupting new job creations which are stifling the economic recovery in the United States.

The current economic undertones continue to keep inflationary pressures high. Speaking with MarketWatch Jeff Wright, chief investment officer at Wolfpack Capital said, “The headline number was a “big miss. The biggest concern for me is wage inflation. Looking at the sum of parts, if the Federal Reserve is most concerned about inflation, then this report is problematic. If the Fed is valuing higher levels of employment and getting labor participation rates back above 62.5%, then the report isn’t.”

Gold daily chart

As of 5:00 PM EST gold futures basis, the most active February 2022 contract is up $7.30 and fixed at $1796.50 a net gain of 0.41%. Our technical studies indicate that the first level for minor support occurs at $1785. The studies indicate major support occurs at $1770. There continues to be resistance between $1800 and $1805 per ounce, with major resistance at $1815 and $1833.

After reflecting on the extremely hawkish undertones in the minutes of the December FOMC meeting, market participants will wait to hear what the Federal Reserve says during the January FOMC meeting which will begin on January 25 and conclude the following day on the 26th.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

Transparency Means Different Things to Different People

Following the conclusion of every FOMC meeting, the Fed releases a written statement and the Chairman holds a press conference. However, in the case of the December FOMC statement and the following press conference, the Fed’s definition of transparency seems quite opaque.

It is true that many of the monetary policy components the Fed is deciding upon are discussed. But it is what is not said leaves much to be desired in terms of completely conveying upcoming monetary policy changes. There are also subtleties in words used to describe forthcoming adjustments, such as tapering their asset balance sheet, and the beginning of interest rate normalization. It is widely known that the Federal Reserve’s actions are data-driven and as that data changes so does the outlook of the Federal Reserve. However, there was no mention either in the statement or the press conference about winding down their assets accumulated on their balance sheet.

The minutes released yesterday told a much more complete story as they discussed an appropriate time to initiate balance sheet reduction. Before the recession that was a direct result of a global pandemic, the Federal Reserve began an aggressive quantitative easing program purchasing $120 billion of U.S. Treasuries and mortgage-backed securities every month.

During a recent press conference, a question was asked to the Chairman regarding the process of tapering and asset reduction. To paraphrase his answer, he said that once the process of tapering was complete, the balance sheet would remain whole and provide the needed liquidity to continue the economic recovery. The truth, however, is quite different as revealed in the minutes released yesterday, where they directly spoke about beginning to reduce its overall asset holdings.

FED balance sheet chart

The chart above titled “Fed balance sheet by era” was created by Reuters news service using the Federal Reserve numbers. It shows that from 2008 to 2009, their assets were just under $1 trillion. To stimulate the economy Chairman Ben Bernanke who was nominated for that position in 2006, beginning his 14-year term, used an Orthodox method to stimulate and revitalize the economy called quantitative easing. Between November 2008 up until June 2010, the Fed created money by purchasing financial assets from banks and the government.

The quantitative easing program was implemented in four stages, QE1 – QE4. By 2014 the Federal Reserve had amassed just under $4 trillion in assets. QE4 was the beginning of quantitative tightening, which attempted to reduce the trillions of dollars held by the Federal Reserve. However, the tightening process came with issues and ended in 2019. In the end, it had reduced their balance sheet from $4.5 trillion to $3.7 trillion. At that point, the Fed Chairman believed that further reductions would create economic difficulties so the process of asset reduction was ended.

In the middle of 2019, the new Chairman of the Federal Reserve began its aggressive use of quantitative easing, taking the Federal Reserve balance sheet from $3.7 trillion to its current size of approximately $8.6 trillion. Yesterday’s minutes revealed the first time that the Federal Reserve publicly acknowledged that there would be a timeline to begin to reduce the assets. If history is any indication asset reductions by the Federal Reserve have intrinsic limitations and are a complex process to complete without having detrimental effects on the economic recovery.

Gold chart

It was this additional component that took market participants by surprise resulting in strong declines in U.S. equities and gold. As of 5:30 PM EST gold futures basis, the most active February 2022 contract is down $32.40 and fixed at $1790.90. While tomorrow’s jobs report could certainly have a dramatic effect on various asset classes, it will be this month’s FOMC in which market participants will demand more clarity and transparency on the intent of the Federal Reserve as it pertains to reducing the Federal Reserve’s massive asset balance sheet.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

Minutes Reveal Interest Rate Hikes Are Coming Sooner and at a Faster Velocity

All three major indices had strong selloffs immediately following the release of the November minutes. Concurrently the dollar lost value and did both gold and silver.

Major indices sustain a substantial decline in value

The Dow Jones industrial average opened at 36,722.60 and traded to an intraday high of 36,952.65, a new record high before succumbing to selling pressure. By the time the dust settled the Dow had lost 1.07%, or 392.54 points, and is currently fixed at 36,407.11 points.

NASDAQ Composite daily chart

After reaching an all-time intraday high yesterday the Standard & Poor’s plummeted as the bullish market sentiment in U.S. equities quickly waned. The S&P 500 lost 1.94% today and the index is currently fixed at 4700.58. By far the greatest carnage in U.S. equities was found in the NASDAQ composite which lost 3.34% and is currently fixed at 15,100.17 points.

Precious Metals – lower prices in gold and silver, and higher palladium and platinum

Gold prices, daily chart

Gold prices had solid gains as trading began in New York this morning. After opening at $1815.20. the bullish market sentiment took gold as high as $1830 and then reversed to as participants bid the precious yellow metal lower. Any solid gains were short-lived as gold prices plummeted from $1830 to $1808.20. As of 5:42 PM EST gold futures basis, the most active February 2022 contract is down $5.10 and currently fixed at $1809.50. Silver lost 1.09% and like gold initially gained value after opening at $23.095. The precious white metal also sold off strongly immediately following the release of the November minutes. Silver is currently down 0.241 cents and fixed at $22.81.

Both platinum and palladium scored modest gains today with platinum gaining $11.60, and palladium gaining $8.30.

The price decline in multiple financial asset sectors such as stocks, gold, and silver reacted quickly as the statement revealed a more hawkish Federal Reserve. The new addendum showed a major change in their monitory policy.

In essence, said that interest rate hikes would begin quicker than anticipated, they also said that the rate hikes would be at a faster pace than they previously had expected.

In an interview with MarketWatch, Brien Lundin, editor of Gold Newsletter said that “The Fed minutes were hawkish, showing greater concerns that inflation would be persistent and generally indicating an accelerated schedule for rate hikes. Thus, they were bearish for gold, as confirmed by the immediate market reaction in the gold price.”

Recently there’s been strong support for gold pricing based upon real concerns about the surging cases of the Omicron variant of Covid-19. The spike is been so dramatic that yesterday it would be reported that approximately 1 million US individuals tested positive for the virus. However, the financial markets reacted to today’s minutes with much more intensity than their focus upon the potential economic effect due to the surging number of new infections.

On Friday market participants will once again intensely focus upon the Federal Reserve as they conclude their first policy meeting in 2022. In particular, they will attempt to glean subtleties in the change of language as well as information on the timelines giving more specifics to the Federal Reserve’s monetary policy moving forward.

Lastly, the minutes released today address the question that gave insight into the asset balance sheet of the Federal Reserve which is now swelled above $8.5 trillion. This is roughly double the assets in the Federal Reserve balance sheet after the last round of quantitative easing in 2013.

Balance Sheet

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

Gold Finds Support at $1798 and Moves Higher as Omicron Variant Surges

According to the CDC, the new variant “omicron” represents 95% of all new cases in the U.S.

According to Reuters, “The United States set a global record of almost 1 million new coronavirus infections reported on Monday, according to a Reuters tally, nearly double the country’s peak of 505,109 hit just a week ago as the highly contagious Omicron variant shows no sign of slowing. The number of hospitalized COVID-19 patients has risen nearly 50% in the last week and now exceeds 100,000, a Reuters analysis showed, the first time that threshold has been reached since the winter surge a year ago.”

According to the World Health Organization, the good news is “evidence thus far suggests Omicron is causing less severe illness. Nevertheless, public health officials have warned that the sheer volume of Omicron cases threatens to overwhelm hospitals, some of which are already struggling to handle a wave of COVID-19 patients, primarily among the unvaccinated.”

The surge in new infections coupled with a weaker than expected U.S. manufacturing report was the primary component that took gold higher today. The ISM manufacturing index was forecasted to come in at 60.0%. However, the actual number came in below that at 58.7%. The ISM report clearly showed that growth amongst U.S. manufacturers is slowing faster than expected. The concern is that inflationary pressures will continue to grow and stifle economic recovery.

As of 4:23 PM EST gold futures basis, the most active February contract is fixed at $1814.90 after factoring in today’s gain of 0.82%, or $14.80. Silver also had strong advances today with the most active March 2022 contract currently up $0.28 and fixed at $23.09.

Gold January chart

On Friday, the U.S. Labor Department will release the jobs report for December 2021. This will certainly be the most important report that comes out this week. Current forecasts from economists polled by various new sources are indicating that the unemployment rate will decline to 4.1% and that the United States will have filled an additional 410,000 jobs. This is after a tepid jobs report last month which showed that only 210,000 new jobs were added in November.

The forecasted numbers for Friday’s jobs report are currently being baked into the current pricing of the financial markets, including the precious metals. If the actual numbers come in well under the forecasted predictions, we could see a continuation of solid bullish market sentiment for gold and silver. However, if they come in at or above the forecasted projections, it could certainly diminish the bullish market sentiment that currently exists in both metals.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

The First Trading Day of 2022 Results in Strong Declines in Both Gold and Silver

The dollar gained 0.632 points or a percentage gain of 0.66%. Concurrently U.S. equities all traded to higher ground, with all three major indices closing near their record highs. The Dow Jones industrial average gained 246.76 points, a percentage gain of 0.68%. The NASDAQ composite gained 1.2% or 187.83 points, and the Standard & Poor’s 500 gained 30.38 points taking the index to a record high close at 4796.49.

The combination of a strong performance in U.S. equities, U.S. dollar strength and rising interest rates vis-à-vis U.S. debt instruments pressured the precious metals lower across the board. Palladium had the largest percentage drawdown giving up 4.45% or $85.10, with the most active futures contract currently fixed at $1827. This puts the differential between gold and palladium approximately $26 apart. Silver lost 1.85% in trading today or $0.43 taking the most active March Comex futures contract to $22.92. Platinum also sustained a loss just over a full percentage point with the most active Comex contract currently fixed at $954.90 a decline of 1.17%.

With 2021 behind us, we can see that gold had a fairly strong decline in 2021 of 3.6%. It seems as though the recent rise in treasury yields has not affected U.S. equities with any negative market sentiment. Of course, the U.S. dollar rose as a direct result of higher yields in treasuries.

This Friday when the U.S. Labor Department releases its nonfarm payroll report will be the next large catalyst that will move gold in one direction or the other. Currently, economists polled are forecasting a gain of 400,000 jobs and considering that the December report for November’s jobs came in roughly half of the projection. If the economist projections are correct, it will represent a tremendous rise in new jobs added last month.

Gold January chart

As of 5:05 PM EST gold futures basis, the most active February 2022 Comex contract has sustained a decline of $27.30, or 1.49%. Gold futures are currently fixed at $1801.30. Gold opened in trading this morning at $1830, traded to an intraday high of $1833 before falling just below $1800 at $1798.20. Unquestionably gold has traded under dramatic pressure today but, at least for now, was able to close above the key psychological level of $1800 per ounce.

Our technical studies indicate major resistance at $1833.50, which corresponds to the 38% Fibonacci retracement from a short data set beginning at $1758.20. The lows occurred on November 3, which was the day the November FOMC meeting ended. Our Fibonacci data set includes November 16, when market forces took gold to an intraday high of $1879.80.

Below that major resistance area is the next level which occurs at $1816, which is a price point that gold traded to before finding resistance on multiple occasions. And the last level of resistance comes in between $1800 and $1804.60 which is the 61.8% Fibonacci retracement level using the same data set as above.

Although gold sold off harshly today if it can hold the price point above $1800, it bodes well for that price point being a key and critical support level. Our studies also indicate a major level of support at $1785 which is based upon the 78% Fibonacci retracement level.

Wishing you as always good trading and good health,

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

Gary S. Wagner

 

It’s Getting to Feel a Lot Like Christmas, With Broad-based Rallies Across Multiple Asset Classes

The Standard & Poor’s 500 closed today at a new record high, and both the Dow Jones Industrial Average and the NASDAQ composite scored significant gains. In the cryptocurrencies space bitcoin gained approximately 4.4% and ethereum gained approximately 3.13%.

The precious metals scored gains across-the-board with palladium having the largest percentage gain of 3.29%. Currently, palladium futures are fixed at $1951.50. Platinum futures gained 0.65 % and is currently fixed at $974.70. Silver futures gained 0.44% and is currently fixed at $22.925, and lastly, gold futures gained 0.40% and is currently fixed at $1809.40.

Gold futures recovered from the most recent decline. After trading to an intraday high of $1815 last Friday, gold futures sustained a two-day decline trading to a low of $1784.90 on Tuesday, December 21. Yesterday gold opened at $1789 and staged a moderate rally of $15.70 which took gold pricing to $1804.80. Today although gold traded to an intraday low of $1800,, gold recovered gaining $7.30 and as of 4:40 PM EST is currently fixed at $1809.50. These gains occurred within thin holiday volume with only 110,408 contracts.

Recent gains in the precious metals are significant and indicate a high potential for them to continue to gain value by the end of this year and especially in 2022.

gold daily candle chart for December 23

Our technical studies indicate that currently, gold futures have resistance at $1815 based on recent intraday highs. Above that, there is resistance at $1828 which is based on the 61.8% Fibonacci retracement. The data set used for this retracement set begins in June with gold at $1920 and concludes the first week of August when gold hit its lowest value in the second half of this year at $1678. Our studies also indicate that major support for gold occurs at $1770 per ounce the 38.2% Fibonacci retracement.

This has been a difficult year, to say the least. The pandemic which began in March 2020 continues to affect individuals globally. For those that have experienced hardship or the loss of loved ones, our hearts and prayers go out to you. That being said, we want to extend our wishes for a happy and healthy holiday season whether you celebrate Christmas or Hanukkah.

To all our followers and subscribers as this year is quickly coming to an end, we wish you the very best in 2022, and as always good trading and good health.

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

Gary S. Wagner

 

Gold Surges Past $1800 on Dollar Weakness and Omicron Fears

Kitco gold index

One simply needs to view both precious metals through the eyes of the KGX (Kitco Gold Index) to see the strong effect that dollar weakness had on the precious metals complex. As of 4:08 PM, EST spot gold is currently fixed at $1804.80, which is a net gain of $15.70 on the day. On closer inspection, we can see that dollar strength contributed approximately half of today’s price search. Dollar weakness accounted for net gains of $7.90, and normal trading added $7.80, which resulted in gold surging past $1800 per ounce.

Silver daily chart

Spot silver pricing also benefited from dollar weakness today. However, in the case of silver, normal trading accounted for two-thirds of today’s net gains. The KGX showed that silver gained a total of $0.31 today and is currently fixed at $22.80. Unlike gold, silver gained $0.10 as the direct result of dollar weakness and $0.21 as the result of normal trading.

Gold daily chart

Gold futures basis the most active February 2021 Comex contract is currently up $16.50, or 0.92%, and fixed at $1805.20. Gold prices are currently very close to the intraday high of $1806.30, well off the intraday low of $1785.80.

One interesting aspect of the financial markets over the last few days has been traders focusing on the Covid-19 variant, omicron. It’s almost as if equity traders and precious metal traders have been oscillating between concerns that the variant will result in major economic contractions during the trading session or completely disregard concerns which was the case today. Traders in the U.S. equity markets disregarded any concerns regarding the variant, and precious metals chose to focus upon it.

It must be noted that we are trading during a pre-holiday period, which will continue to create volatility due to the thin volume. Concern about the spiraling level of inflation continues to be a forefront concern. However, for the most part, traders and market participants in both the equities and precious metals markets have now baked the increased amount of rate hikes expected from the Federal Reserve. Currently, market participants have factored in a total of six rate hikes, three interest rate hikes in 2022 as well as three rate hikes in 2023.

Our technical studies indicate that although gold solidly traded above the key psychological level of $1800, current pricing at $1804.70 puts it right at the 61.8% Fibonacci retracement level at $1804.60. Our studies also indicate major resistance that occurs at $1815.

The first level of support is currently fixed at $1788.80 which is based upon a support trendline created from the compression triangle which occurred over the last three months (see gold chart). Below that the next support level occurs at $1784.90 which is based upon a 78% Fibonacci retracement. Major support currently resides at $1770.30 which is the 38% Fibonacci retracement based upon the longest data set used in our studies. This data set begins at the highs of $1920 that occurred during the first week of June down to $1678, the low that occurred the first week of August.

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

Wishing you as always good trading and good health,

Gary S. Wagner

 

Gold Trades Lower and Silver Gains as Bullish Risk-on Sentiment Prevail

Yesterday, market participants in U.S. equities were solidly risk-off, taking all three major indices lower. Today U.S. equities reversed, scoring solid gains across-the-board.

The Dow Jones industrial average gained 560.64 points, or 1.60% and closed today at 35,492. The NASDAQ composite had the largest percentage gain trading up 2.40%, and the Standard & Poor’s 500 gained 1.78%.

Phillip Streible, chief market strategist at Blue Line Futures in Chicago, said, “You got a risk-on trade with U.S. equities bouncing back after the losses yesterday.”

Silver daily chart

Silver benefited from the strong showing in U.S. equities based upon its intrinsic industrial value. Gold, however, did decline as investors favored equities over the safe-haven asset, gold. As of 4:55 PM EST gold futures basis, the most active February Comex contract was trading off by $5.50 (-0.31%) and fixed at $1789.10. Although the dollar was slightly lower, its fractional gains only provided minor tailwinds.

Kitco Gold Index

These fractional gains resulting from dollar weakness can be seen in spot gold through the eyes of the Kitco Gold Index (KGX). Spot gold is fixed at $1788.50, with a net gain of $0.35 directly attributable to fractional weakness in the dollar index. Normal trading took spot gold pricing down by $3.05 resulting in a net decline of $2.70.

Gold daily chart

However, silver benefited from the solid bullish risk-on market sentiment, gaining just under $0.24 (+1.07%) in trading today. Basis the most active March Comex futures contract silver is currently fixed at $22.53.

Unlike yesterday’s decline in the U.S. stock market in which stock traders focused upon their concerns about the new Covid-19 variant Omicron. Today traders chose to largely ignore potential economic risks that could come due to this new variant. However, market participants trading gold and silver continue to buy the dips as Omicron quickly becomes the predominant variant in the United States.

According to the Associated Press, “Much of the concern is being driven by omicron, which federal health officials announced accounted for 73% of new infections last week, a nearly sixfold increase in only seven days.”

They also reported that “The Centers for Disease Control and Prevention numbers showed nearly a six-fold increase in omicron’s share of infections in only one week. In much of the country, it’s even higher. Omicron is responsible for an estimated 90% or more of new infections in the New York area, the Southeast, the industrial Midwest, and the Pacific Northwest. The national rate suggests that more than 650,000 omicron infections occurred in the U.S. last week.”

What is known about this new variant is that it is much more contagious than previous variants of the Covid-19 virus. However, although it is the dominant variant in the United States the top virologists and the CDC have stated that much about this new variant remains an unknown. The unknowns include whether or not this variant causes more or less severe illness once contracted.

This makes any potential economic contraction due to the virus unknown. As such could be highly supportive of the safe-haven asset gold, and pressure the U.S. equities markets through the end of the year and into 2022.

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

Wishing you as always good trading and good health,

Gary S. Wagner

 

Gold Trades Under Pressure Back Below $1800 as Investors Focus on Fed

Gold opened at $1800.20, traded to a high of $1804.60, and is currently trading $0.90 off the intraday low of $1789.

U.S. equities were dragged down today by concerns of the new Covid-19 variant “Omicron.” The Dow lost 433 points (-1.43%), the S&P 500 gave up 1.06%, and the NASDAQ composite declined by 1.17%. However, it seems that market participants who trade and invest in gold did not have the same concerns as in the U.S. equities markets.

Instead, market participants continue to focus upon the Federal Reserve’s plan to accelerate the tapering timeline of their asset purchases and implement rate hikes next year. According to the most recent information from the Federal Reserve, their likely course of action will be to implement three rate hikes in 2022 and an additional three rate hikes the following year in 2023. Although the rate hikes the Federal Reserve will implement will be subtle and small steps of 25 basis points (1/4%) these hikes would raise the Fed funds rate to 1 ¾ % by the end of 2023.

Gold, daily chart

Our technical studies indicate strong resistance at $1815 per ounce. This is based upon intraday highs that occurred in mid-October, the end of November, and last Friday. On Friday, gold traded to an intraday high of $1815 and closed at the 61.8% Fibonacci retracement of the November rally. During the November rally gold traded from a low on November 3 of $1758 to a high of $1870.60 on November 16. These technical studies confirm that $1815 is the current level of strong resistance. The next level below that occurs between $1804.60 (the 61.8% retracement point) and $1800 per ounce, a key psychological level.

Silver, daily chart

Silver experienced a strong decline today, giving up 1.17%, or a total of 26.3 cents which takes the most active Comex contract to $22.27. Our technical studies indicate support at $21.50. This is based upon two significant lows that occurred first on September 29 and then on December 15. We currently see major resistance at $23. This is based upon the 78% retracement from a data set that begins at the highs achieved in silver of $28.88 that occurred on May 17 of this year to the double bottom we spoke about at $21.50.

With the holiday season underway, we would expect to see light volume and the choppy market as we get closer to the beginning of the Christmas holiday season commencing. Then between Christmas and New Year’s we expect to see very light participation from major traders as they celebrate the holiday season.

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

Wishing you as always good trading and good health,

Gary S. Wagner

 

Gold is Unable to Hold $1800 After Trading to a High of $1815

Gold futures traded to an intraday high today of $1815.70. However, with only 45 minutes left in Globex trading (New York trading has already closed) gold futures basis, the most active February 2021 Comex contract is trading up by $0.70 (+0.04%) and fixed at $1798.90.

Over the last two trading days, gold has challenged $1800 but has not effectively closed above that key psychological price point since mounting a strong rally yesterday, which took gold’s close yesterday to $1798.10. Today gold opened at $1801.50 and traded to a low of $1796.50.

Currently, gold is being supported by several factors. First, there is risk-off market sentiment in regards to U.S. equities. All three major indices closed lower on the day, with the Dow Jones industrial average declining by 1.46%, the NASDAQ composite closing fractionally lower off by 0.07%, and the Standard & Poor’s 500 declining by 1.03%.

Secondly, there is uncertainty in regards to an economic contraction based upon the recent surge of Covid-19 daily infections as well as the impact of the new variant “Omicron.” The Delta variant accounts for the majority of new daily infections globally. However, according to the World Health Organization’s Director-General Tedros Adhanom, Ghebreyesus 77 countries have now reported cases of the new variant “Omicron is spreading at a rate we have not seen with any previous variant. We’re concerned that people are dismissing Omicron as mild. Surely, we have learned by now that we underestimate this virus at our peril.”

Lastly, there are still concerns about inflation which is still at a 40 year high. In an interview with MarketWatch, Colin Cieszynski, chief market strategist at SIA Wealth Management, said that there is “increasing concerns about inflation,” which was enough to push the Federal Reserve and European Central Bank to accelerate tapering of bond purchases and the Bank of England to raise interest rates.”

kitco gold index dec 17

Pressuring gold today was a solid gain in the dollar. The dollar index gained 60 points today (0.62%) and is currently fixed at 96.615. According to the Kitco Gold Index as of 4:10 PM, EST spot gold was trading down by one dollar and fixed at $1798.30. Although gold had a net gain of $11.20, dollar strength more than compensated for today’s gains resulting in gold losing $12.20 in value.

Our technical studies indicate that the current resistance levels occur first between $1800 and $1804.60 (the 61.8% Fibonacci retracement), with major resistance at $1818 (the 50% retracement level). Additionally, the first level of support for gold occurs at $1758.30, with major support at $1732.60.

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

Wishing you as always good trading and good health,

Gary S. Wagner

 

Gold Flirts With $1800 as Market Participants Digest Yesterday’s FOMC Meeting

Gold had been trading lower before the release of the statement and dot plot trading to a low of $1753. Chart number one is a five-minute line chart detailing when Chairman Powell first took the podium. Gold had come off the prior lows but was still trading lower at $1762.

Gold, 5 min chart

By the time Chairman Powell had concluded his press conference, gold was trading just shy of $1780. Since then, it has not looked back today, flirting with $1800 per ounce. The last time gold had a closing price this high was on November 5, two days after the November FOMC meeting. Powell’s press conference had a very similar initial effect during the November FOMC meeting compared to this month’s meeting. On the day following the last two FOMC meetings, gold reached a high of $1800 per ounce.

On the day the November FOMC meeting concluded gold futures had opened at $1790, traded to a low of $1758, and closed at $1763, resulting in a net decline of $27. Yesterday gold traded to a low of $1752, a high of $1781, and closed at $1763, netting a small decline. However, in both of the last two FOMC meetings the following day we saw gold prices spiked dramatically higher. On November 4 gold gained $24 on the day, and in today’s trading gold gained approximately $35.

Gold daily chart

Chart number two is a daily candlestick chart of gold futures with the conclusion of both November and December’s FOMC meeting highlighted. As of 4:27 PM EST gold futures basis, the most active February contract is currently fixed at $1799.60, after factoring in today’s net gain of $35.10 or 1.99%.

Interestingly the explanation for yesterday and today’s strong pivot in gold differs from analyst to analyst. It reminds me of the story of five blind men describing an elephant. In other words, each explanation for the most part is a partial explanation based upon the analyst’s vantage point.

My interpretation of why gold spiked higher while Chairman Powell was conducting his press conference involves a few factors but the most important one being that he differentiated the timeline for tapering and the necessary criteria needed to initiate the first-rate hike.

By doing this market participants that were anticipating the first-rate hike immediately following the completion of the tapering process had to rebalance their outlook once it became clear that although the tapering process will end in March, the first-rate hike will not occur until the Federal Reserve’s mandate of full employment is met. Which Powell anticipated would occur about the middle of 2022. This statement truly tapered the more hawkish tone of the Federal Reserve with their monetary policy indicating three interest rate hikes in both 2022 and 2023.

If last month’s move in gold is any indication of what to expect following yesterday’s last Fed meeting of the year, it could be the beginning of a decent rally. The November rally concluded two weeks after gold reached an intraday high of $1879.

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

Wishing you as always good trading and good health,

Gary S. Wagner

 

FOMC Meeting Concludes Revealing an Increased Hawkish Demeanor

The last dot plot anticipated that there would only be one interest rate hike in 2022. However, that changed dramatically. Currently, the Federal Reserve is anticipating raising rates three times in 2022, three times in 2023, and two times in 2024. Each interest rate hike will be ¼% or 25 basis points. This is a much more aggressive timeline for rate hikes than previously expected.

However, Chairman Powell made the distinction between the ending point of tapering and the onset of lift-off. He said that as far as the initiation of rate hikes, that will be data-dependent as we look at levels of employment and initiate interest rate normalization till they have determined that the country is at maximum employment.

The anticipation is that the first-rate hike will begin approximately in June 2022, which was construed as a bullish statement both for U.S. equities and gold. Both U.S. equities and gold prices came off of their lows as Chairman Powell spoke about when they would begin to raise interest rates next year even though they have penciled in a total of three rate hikes in 2022.

According to CNBC, “Stocks hit their highs of the day Wednesday as Fed Chairman Jerome Powell answered questions following the central bank’s latest monetary policy announcement. The Dow Jones Industrial Average traded about 305 points higher, or 0.9%. The S&P 500 gained 1.3%, and the Nasdaq Composite advanced 1.6%.”

Chairman Powell’s press conference had the same effect on Gold which was trading at a low of $1758 and within one hour (during and after the conclusion of Powell’s press conference), gold jumped to $1779 per ounce. As of 5:45 PM EST gold futures basis, the most active February 2022 contract is up $5.20 and fixed at $1777.50.

They also, as expected, accelerated the timeline for tapering by doubling the monthly reduction to $30 billion instead of the former $15 billion. That means that they will increase their purchases of mortgage-backed securities by $5 billion and increase their purchases of United States debt assets by $10 billion.

This means that they will conclude their tapering process early in 2022. However, they made no mention of any reduction in their current asset sheet which has a balance exceeding $8.6 trillion. Chairman Powell stated during the press conference that their asset sheet would contain enough capital to provide needed liquidity even after tapering concludes.

Chairman Powell addressed the tapering process by saying, “In dealing with balance sheet issues, we’ve learned that it’s best to take a careful, sort of methodical approach to making adjustments. Markets are going to be sensitive to it, and we thought this was doubling the speed. “We are basically two meetings away now from finishing the taper. We thought that was the appropriate way to go.” Powell stated in his Q and A.

In regards to the acceleration of their tapering process Chairman Powell said, “Moving forward the end of our taper by a few months is really an appropriate thing to do,” When asked about the new Covid-19 variant, he stated, “Omicron doesn’t really have much to do with that.” He added that “There’s a lot of uncertainty which is why we called it out in our statement or post-meeting statement as a risk.” adding Omicron’s effect on the economy “will depend on how much it suppresses demand. As opposed to suppressing supply.”

The take away is that the Federal Reserve has been slow to acknowledge that they underestimated how hot inflation would get, and how long it would last. The fact that the Federal Reserve is now anticipating eight interest rate hikes from 2022 to 2024 confirms that the Federal Reserve has been in essence chasing inflation, reacting to it as it continues to spiral out of control. They did not have a contingency plan for this scenario which is why the Federal Reserve has pivoted to a total of eight rate hikes between 2022 and the end of 2024.

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

Wishing you as always good trading and good health,

Gary S. Wagner

Gold Continues to Factor in a Hawkish Fed, Taking Gold Lower

As of 5:30 PM EST gold futures basis, the most active February contract is currently trading down $16.70, which is a net decline of 0.93% and fixed at $1771.50.

gld 12 14

Market participants reacted to an increase in producer prices in the United States as these increased prices will add to the current inflationary level. Today the U.S. Labor Department reported that producer prices increased by 0.8% in November. This takes the year-over-year producer price index to 9.6%. Concurrently the core rate of inflation rose by 0.7%, to 6.9% year-on-year. Last Friday’s report that the CPI price index spiked to 6.9% in the 12 months through November, and is the largest year on year rise since June 1982.

fed inflation graph

Collectively these recent reports indicate that inflation continues to spike higher and will probably remain more persistent than the Federal Reserve previously assumed.

According to Reuters, “U.S. producer prices increased more than expected in November as supply constraints persisted, leading to the biggest annual gain since the series was revamped 11 years ago and supporting views that inflation could remain uncomfortably high for some time.”

Both continued labor shortages coupled with rising prices most certainly will accelerate the current extremely high level of inflation and will increase the likelihood that the Federal Reserve will accelerate the tapering timeline to accommodate lift-off as they begin to raise the Fed funds rate earlier than anticipated. Tomorrow we will get our first look at the revised “dot plot”. This will be updated from the last release of the “dot plot” in September which indicated that there would only be one rate hike in 2022.

Currently, analysts have mixed views on how many rate hikes the Federal Reserve will pencil in next year. Estimates range from two rate hikes on the low estimates to four rate hikes on the higher end estimates.

According to senior economist Sal Guatieri of BMO Capital Markets, “U.S. inflation was even hotter than expected in November and is now running the fastest in nearly four decades, with little near-term relief in sight.”

UBS analyst Giovanni Staunovo summed up market sentiment by saying, “Market participants will closely track the upcoming Federal Open Market Committee meeting to see how the central bank reacts on elevated inflation, which will result in likely larger price moves.”

With data indicating inflationary pressures are continuing to move higher, the Federal Reserve will most likely act in an extremely un-accommodative and hawkish posture in regards to their adjusted monetary policy.

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

Wishing you as always good trading and good health,

Gary S. Wagner