Hawaii Six O - Gary Wagner
Investors wait for CPI numbers but the bearish sentiment remains on Fed’s narrative
Kitco Commentaries | Opinions, Ideas and Markets Talk
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Gold investors had a wake-up call last Thursday when gold futures hit $1974, the highest value of 2023. But that same day also marked the beginning of a correction. Gold would lose approximately $90 per ounce over last Thursday and Friday.
This week started with a whimper with gold trading to a higher high and higher low on Monday, Tuesday, and Wednesday. However, each day had fractional gains and through the eyes of a Japanese candlestick chart were identified as spinning tops which always have a small real body (the rectangle drawn between the open and closing price of a trading session). While gold prices did have gains it was obvious that this strength was tepid at best.
On a technical basis, gold was attempting to find support at the 38.2% Fibonacci retracement level which is considered an acceptable but shallow correction. The caveat though is that gold as well as the financial markets at large have been headline driven based on the latest comments of Federal Reserve officials.
In December the Federal Reserve released its most current economic projections and “dot plot” which contained the anticipated rate changes by the Federal Reserve as 17 Federal Reserve members placed their opinion (as a dot). December's projections of interest rates in 2023 contained the stark realization that unanimously voting members of the Federal Reserve anticipated taking the current benchmark rate higher with the goal of just over 5% and maintaining those elevated rates throughout the entire calendar year of 2023.
The elevated hawkish tone reflecting expected actions by the Federal Reserve began to factor into the current pricing of precious metals, US treasuries, and stocks. A faction of market participants continues to believe that there would be rate cuts this year contrary to what the Federal Reserve’s narrative was and continues to be. However last week’s announcement by the Federal Reserve was that they might have to take rates to a higher target closer to 6%. This most likely is what prompted the selloff at the end of last week.
Thursday was the only day this week in which gold prices closed below the opening value and today’s action resulted in a fractional decline of roughly $3.30. As of 4:45 PM EST, the most active April futures contract is currently fixed at $1875. Silver also has been trading under pressure for the better part of this week with the most active March contract attempting to hold pricing at $22 per ounce. Currently, March silver futures are fixed at $22.01 after factoring in today’s decline of just over $0.12 per ounce.
Dollar strength was certainly a strong component providing moderate to strong headwinds as dollar strength characterized today’s action. The dollar index gained 0.37% in trading and is currently fixed at 103.49.
Investors are waiting for the next report on headline inflation vis-à-vis the CPI next Tuesday. They are hoping to gain better insight into possible pivots by the Federal Reserve concerning their rate hikes. The most important takeaway of price action over the last few weeks has less to do with any technical indicators and more to do with the event-driven news based on the current narrative of the Federal Reserve.
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Wishing you as always good trading,