Make Kitco Your Homepage

Powell's address to Senate Banking Committee spurs sell-off in gold

Commentaries & Views

Today Chairman Jerome Powell addressed the Senate Banking, Housing, and Urban Affairs Committee. As anticipated the chairman delivered a strong warning that the Federal Reserve will once again modify its monetary policy to deliver tougher rate hikes at a faster pace.

"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,".

Furthermore, the chairman stated that, "If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

His address to the Senate implies that it is likely that the Federal Reserve will reverse the slower pace evident after the January FOMC meeting in which the Fed announced a 25-BPS rate hike. The smallest rate hike since March of last year. It also could be a warning that the Federal Reserve will raise its terminal rate objective from 5.1% to possibly 5.5% – 5.75%.

According to the CME's FedWatch tool, there is a 70.5% probability that the Fed will raise rates by 50-BPS and a 29.5% that the Fed will be less aggressive with a 25-BPS rate hike. The probability pendulum has swung widely considering that one month ago on February 7 the FedWatch tool indicated a 90.8% probability of a 25-BPS rate hike with only a 9.2% probability of a more aggressive 50-BPS hike

The Federal Reserve officials odds for a recommendation of a 50-BPS rate hike this month is more likely than anticipated before Powell's address to the Senate today.

As of 4:15 PM EST, gold futures basis most active April contract is down $36 or 1.94% and fixed at $1818.60. This is the result of selling pressure by traders as well as a strong upside move in the dollar. Currently, the dollar is up 1.2% and the dollar index is fixed at 105.575.

Powell will address Congress tomorrow however, it must be noted that Friday's jobs report combined with next week's CPI report will shape the final decision of the Federal Reserve at their next meeting.

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

Wishing you as always good trading,

Disclaimer: The views 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 accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.