Hawaii Six O - Gary Wagner
Gold’s most active contract switches to June which are flirting with $2000
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Gold traded higher by low double digits today. The gains are the result of two factors and tomorrow’s PCE inflation report. Currently, the April 2023 contract of gold futures is trading up $14.20 and fixed at $1981.10. Concurrently, the June 2023 contract of gold futures is fixed at $1998 up $13.50. Today the June contract hit an intraday high of $2002.40.
The volume is diminishing in the April contract with an open interest of 88,563. The volume in the June contract has an open interest of 145,716. Traders are switching from the April contract to the June contract which is next in line to be the most active.
The dollar is currently trading lower by 0.43% and the dollar index is fixed at 101.86. The dollar has had a strong decline since October of last year when the index traded to an intraday high of 114. It seems that the days of extreme dollar strength have greatly diminished and we anticipate that the dollar index could break below 100.
Yields on government bonds are also lower which has greatly enhanced the demand for gold as a haven asset. Gains in U.S. equities did little to diminish demand for the haven assets and did not seem to have any detrimental effect on Gold pricing today.
As we spoke about yesterday, market participants who are anticipating a Fed pivot from raising rates to cutting rates have been largely disappointed. It is accepted by analysts and economists that the Federal Reserve will continue to either raise rates or pause rates at some point soon.
The CME’s FedWatch tool indicates that professional traders are almost split between anticipating a ¼% rate hike or a pause in interest rate hikes at the next FOMC meeting which begins around a month from today and concludes on May 3. According to the CME’s probability indicator, there is a 43.6% probability that the Federal Reserve will pause its hawkish monetary policy of raising rates at each FOMC meeting, and a 56.4% probability that the Fed will raise rates by ¼%. Yesterday the CME’s FedWatch tool indicated that there was a 67.4% probability that the Fed would pause rates with a 37.6% probability of a ¼% rate hike. This is a pretty dramatic shift in the last 24 hours.
Lastly, the preferred inflation indicator of the Federal Reserve, the PCE (Personal Consumption Expenditures Price Index) will be released tomorrow, March 31. Currently, forecasters believe that inflation levels will remain elevated. If the PCE does remain elevated as currently predicted it could strengthen the resolve of the Federal Reserve to raise rates rather than take a pause.
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Wishing you as always good trading,
Gary S. Wagner