Hawaii Six O - Gary Wagner
Multiple factors align taking gold to a 10-week high
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It was not one singular issue or event that has taken gold to the highest level since the beginning of August. These factors include but are not limited to a major potential pivot by the Federal Reserve and their exceedingly restrictive monetary policy, the recent geopolitical crisis in the Middle East which could evolve from a regional conflict, spreading throughout the Middle East.
The Federal Reserve’s monetary policy and its influence on gold
The Federal Reserve has been aggressively using its tools in its attempt to reduce inflation to its 2% target. These actions include an exceedingly restrictive monetary policy. The Fed is attempting to accomplish this goal by raising interest rates. They are also working at reducing their money supply, which makes the cost of borrowing not only more expensive but more difficult as well.
Since March 2022 the Federal Reserve has raised rates from between 0 and ¼% to its current level which is between 5 ¼% and 5 ½%. This put dynamic pressure on gold, increasing the price volatility but more importantly, pressuring gold lower as the Federal Reserve raises rates. Market participants have been waiting for an indication that the cycle of rate hikes is over, which would create an extremely bullish undertone for gold pricing moving higher. Recently, some Federal Reserve members have been in favor of continuing to pause interest rate hikes and even more importantly have signaled that they believe that the rate hike cycle is near its completion.
Global geopolitical conflict is elevated far beyond a crisis mode
On February 24, 2022, Russian forces numbering well over 100,000 invaded its neighbor Ukraine. This crisis continues and there has been no indication that a peaceful resolution is in sight. Initially, it added to the already high levels of inflation specifically in agricultural products such as corn and wheat because both countries are major producers of those commodities. The carnage and devastation continue as estimates by the United States indicate that nearly 500,000 Russian and Ukrainian soldiers have been wounded. The number of civilians killed has been rising day by day and according to Reuters, as many as 345,000 Russian and Ukrainian soldiers have lost their lives.
In a surprise attack that alluded to both Israeli and US intelligence, the militant group which controls the Gaza Strip attacked and killed countless Israeli civilians. That combined with the response by Israel has led to the loss of thousands of citizens and military. Of greatest concern is there is absolutely no endgame or discussion of any sort of peaceful resolution.
The combined effect of all these factors has left citizens of the world shell-shocked. It has affected every facet of economic and global stability. As such, it is no wonder that a haven asset like gold would have responded in the way that it has - rising tremendously
On October 9 the day of the Israeli invasion, gold futures were fixed at approximately $1830. As of 5:45 PM EDT, the most active December 2023 futures contract is up $12.20 and fixed at $1988.80. That means that gold is within striking distance of $2000 per ounce now only $11.20 away from that key psychological level. What is more shocking is that if the economic and geopolitical crisis continues, it is highly likely that gold could trade to its highest level in history.
The sad truth is that while many analysts and gold aficionados want nothing more than to see gold break $2000 and eventually trade to an all-time new record high, the factors and events that are moving gold to a new record high come at the cost of unthinkable horrors and countless casualties that no precious metal promoter wishes.
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Wishing you as always good trading,
Gary S. Wagner