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Investors focus on China and Fed comments which pressured gold lower

Commentaries & Views

Today gold futures are trading under pressure as market participants react to multiple events including comments by several Federal Reserve officials, protests in China, Chairman Powell's upcoming speech, and Friday's jobs report.

As of 4:48 PM EST gold futures basis of the December 2022 Comex contract is fixed at $1740 after factoring in today's decline of $14 or -0.80%. The most active or front month for gold futures will change from December to February 2023 within days. Currently, the February 2023 contract of Comex gold is down $14.10 and fixed at $1754.70.

The December contract of silver futures is also trading lower today. Currently, December futures are down -2.59% or $0.56 and fixed at $20.87. The most active front month in silver futures is also moving from December to the March 2023 contract which is currently down 54.9 cents or -2.59% and fixed at $21.065.

Weakness in both gold and silver today is the byproduct of multiple events. Concerns about mass protests in China are front and center. According to the New York Times, "After a weekend of confrontations between officials and demonstrators, video from two sites in Shanghai and Beijing showed a heavy security presence."

Chinese citizens have staged protests against China's strict Covid restrictions and lockdowns which have led to nationwide protests. Investors are concerned that the lockdowns and strict restrictions will limit economic growth in China the world's second-largest economy.

Various members of the Federal Reserve have been extremely vocal about upcoming interest rate hikes. One of the more hawkish Federal Reserve members is the St. Louis Fed President James Bullard. Last week he commented on the need for the Federal Reserve's benchmark rate to go as high as 7% to deal with lowering inflation. This week speaking to Greg Robb an editor at MarketWatch when asked a question about how long expects the fed funds rate will need to remain in the 5% to 7% range, he said that "the Federal Reserve will likely need to keep its benchmark policy rate north of 5% for most of 2023 and into 2024 to succeed in taming inflation."

During his interview with MarketWatch, he also added that "it seems markets are still underestimating the degree to which the Fed will need to keep policy tight in order to rein in inflation, explaining that there is still some expectation that inflation might subside on its own."

Investors are wondering if Chairman Powell will soften the hawkish rhetoric when he speaks on Wednesday at an event hosted by the Brookings Institution in Washington. Currently, it is widely assumed that the Federal Reserve will raise its benchmark rate by 50 basis points in December.

However, the probability of a 50-basis point rate hike has been decreasing. Currently, the CME's FedWatch tool believes there is a 67.5% probability that the Fed will raise its benchmark rate by 50 basis points at the last FOMC meeting of the year. Only one day ago the CME's FedWatch tool was predicting a 75.8% probability, and one week ago it was predicting an 80.6% probability.

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Wishing you as always good trading,

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