Hawaii Six O - Gary Wagner
The hawkish Fed narrative continues to underscore the need for further rate hikes
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The recent volatility that led to diminished bullish market sentiment for gold has diminished as gold continues to effectively find support at $2000 per ounce and above. Today gold traded to a low of $2002.20, effectively above the current critical support level of $2000. This morning in New York traders witnessed a quick and powerful price surge taking gold to a high of $2024.20. As of 4:00 PM EST gold futures basis the most active June 2023 contract is up $8.30, or 0.41%, and fixed at $2015.60.
The dollar had very little input in today’s price gains in gold with the index off fractionally by 0.08% and fixed at 101.585.
Officials of the Federal Reserve continue to express a resolute narrative that is conveying that at least for the near future a pause of interest rate hikes is off the table. Rather, an additional Federal Reserve official today continues to reiterate the need for taking interest rates higher, which will include additional rate hikes, and keeping the elevated level intact for a longer period of time.
Federal Reserve officials will go silent in two days, on Saturday, April 22. The blackout period will remain in effect until the May FOMC meeting has concluded, and a statement is released which will be followed by a press conference with Chairman Powell.
Now three Fed officials have expressed the need to continue to raise interest rates even after the anticipated ¼% rate hike occurs in May. Yesterday, the New York Federal Reserve President, John Williams spoke to a group of bond-market experts known as the Money Marketeers of New York University saying that recent data has indicated that a “trend of slowing inflation is continuing.” He also added that there are some indications of a “gradual cooling in the demand for labor”. However, “Inflation is still too high and we will use our monetary policy tools to restore price stability.”
President Williams's comments can now be added to similar remarks by Fed Governor Christopher Waller and James Bullard.
Wallace said that the Federal Reserve needs to continue raising interest rates because of the high level of inflation. St. Louis Federal Reserve President James Bullard said, “The U.S. central bank should continue raising interest rates on the back of recent data showing inflation remains persistent while the broader economy seems poised to continue growing, even if slowly.”
The combination of all three Fed officials expressed a narrative much different than many market participants assumed, which was a pause by the Federal Reserve in rate hikes to begin after one more rate hike in May. Market participants are now factoring in the possibility of additional rate hikes after the expected ¼% hike at the FOMC meeting in May.
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Wishing you as always good trading,
Gary S. Wagner