Hawaii Six O - Gary Wagner
Gold breaks below recent lows as central banks worldwide raise rates
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The Federal Reserve’s drumbeat signaling more rate hikes is loud enough to be heard on the other side of the world. In his second day of testimony to the House and Senate Chairman Powell is reiterating his message that a “strong majority” of Federal Reserve officials are strongly committed to raising rates twice for a total of 50 basis points by the end of the year. This would take the Fed’s benchmark Fed funds rate to a range of 5 ½% to 5 ¾%.
Today’s testimony to the Senate Banking Committee marks the third time Chairman Powell has underscored the Federal Reserve’s plan to implement two more rate hikes before the end of the year. He delivered this message during his press conference last week, to the House yesterday, and to the Senate today. When asked for a timeline when the Fed will raise rates again Powell responded by saying, at a “careful pace”.
He did however hedge this statement by adding that any further rate hike decisions will depend on how the economic data develops.
The resolute hawkish stance of the Federal Reserve has been heard overseas with multiple central banks following suit and raising their benchmark interest rates. The Bank of England raise its benchmark rate to 5%, the 13th straight increase by the BOE. Officials at the BOE warned that “further hikes might be needed”.
The Bank of England’s Monetary Policy Committee (MPC) in a vote of seven to two voted in favor of a rate hike. Inflation is running hotter in many parts of Europe than in the United States. A report on Wednesday revealed that the CPI in the U.K. came in above expectations. Economists were expecting the headline inflation (CPI) to ease to 8.4%. Wednesday's report revealed that inflation had come in hotter than expected at 8.7%.
The BOE was not alone in its action with central banks in Norway, Switzerland, and Turkey also enacted rate hikes to slow their respective countries' inflationary pressures.
The combination of Chairman Powell’s testimony and multiple central banks in Europe raising rates resulted in a strong decline in gold today. Gold futures traded to a low of $1922. As of 5:11 PM EDT, the most active August contract of gold futures is currently fixed at $1923.90 which is a decline of 1.08% or $21.
The strong decline of gold prices from its high of $2083 in May to current pricing can be directly tied to strong rate hikes in central banks worldwide with the Federal Reserve's strong restrictive monetary policy leading the way. That being said there is mild technical support for gold at $1906 and strong technical support at $1850 per ounce.
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Wishing you as always good trading,
Gary S. Wagner