Gold has strong gains as mixed signals emerge on future rate hikes

Gold has strong gains as mixed signals emerge on future rate hikes

Gold futures basis, the most active contract in December 2022 at 5:05 p.m. EDT, is currently pegged at $1662.50 after taking into account today’s net gain of $25.70 or 1 .57%. The strong gain was based on differences among voting members of the Federal Reserve as they debated whether or not to reduce the magnitude of the interest rate hike at the December FOMC meeting. There is certainly no unanimous consensus on future actions regarding the pace and extent at which the Federal Reserve continues to raise its federal funds rate.

According to the CME’s FedWatch tool, there is a 96.5% chance that the Federal Reserve will raise its key rate an additional 75 basis points in November. The FedWatch tool calculates its probabilities based on Fed Funds futures prices and has had excellent results in past predictions.

A recent change has occurred in the likely size of the rate hike in December which has changed drastically over the past week. This indicator currently predicts that there is a 51.9% probability that the Fed’s benchmark interest rate will be between 425 and 450 basis points, the probability yesterday was only 24.2%.

Meanwhile, the FedWatch tool estimates that there is a 46.3% chance that the fed funds rate will be between 450 and 475 basis points by the end of 2022. This differs significantly from yesterday’s prediction. which indicated a probability of 75.4%. What caused the dramatic change in Fed Funds futures prices over the past 24 hours was renewed speculation among Federal Reserve officials about whether or not to begin reducing the magnitude of the rate hike in December as well as hikes next year.

First reported by The Wall Street Journal this morning, “Federal Reserve officials are heading for another 0.75 percentage point interest rate hike at their November 1-2 meeting and will likely debate then whether and how to report plans to approve a smaller increase in December.”

The article also discusses that some officials have begun signaling their “desire to both slow the pace of increases soon and stop raising rates early next year to see how their actions this year slow down.” the economy”. The concern among the more dovish Federal Reserve officials is their desire to reduce the risk of creating an unnecessary sharp contraction in the economy. Those who oppose any change to their current pace of hawkish rate hikes think it’s too early for those talks because inflation is still extremely entrenched and persistent.

Fed Governor Christopher Waller said earlier this month, “We will have a very thorough discussion on the pace of tightening at our next meeting.” Which makes it interesting that today’s Wall Street Journal article carried so much weight when it was common knowledge that a discussion had taken place about the pace of monetary tightening.

Throughout this week, analysts, including myself, have focused on recent statements from various Federal Reserve bank presidents indicating a desire to raise its benchmark interest rate to between 450 and 475 basis points. before making a decision. This can only happen if they raise rates by 75 basis points at the next two FOMC meetings.

That’s why today’s Wall Street Journal article titled “Fed Set to Raise Rates by 0.75 Point and Debate Size of Future Hikes” had such a huge impact. One possibility is that the Wall Street Journal also reported that “two Federal Reserve officials have started making the case for being cautious about raising interest rates recently.”

Whatever the cause for the publication of this article today, it is undeniable that this article has been instrumental in the dramatic increase in gold and silver prices. Additionally, it had a strong impact on US equities, with the Dow Jones gaining 748.97 points or 2.47%, the S&P 500 gaining 2.28% and the NASDAQ composite gaining 2.89%.

Since raising the Federal Reserve’s federal funds rate requires a vote in which the majority of voting members are in favor of the hike, market participants will be intently focusing on November’s FOMC statement as well as the President Powell’s statements at the press conference following the conclusion. of the November meeting.

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Wishing you as always good exchanges and good health,

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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