For the time in the last seven trading sessions, gold closed above its daily opening price and higher than the previous day’s closing price. However, there was no strong upside move, no higher high than the previous day, and no clear indication that the recent selling pressure has concluded. Rather it seems that market participants are waiting to see what the next two key reports will indicate about inflation and jobs.
The first key report will occur tomorrow when the U.S. Labor Department will release the nonfarm payroll jobs report for June. This will be followed next week by the latest inflationary numbers when the BEA will release the CPI (Consumer Price Index) for last month. Market participants are anticipating the certainty that the Federal Reserve will raise interest rates once again this month.
However, the current debate revolves around whether or not the fed will implement another 75 basis point rate hike as they did in June, or soften their aggressive stance by only raising rates by 50 basis points. The key takeaway is that regardless of what the jobs and inflation report reveal the Federal Reserve will continue to batten down the hatches as they have since March.
According to the CME’s FedWatch tool, there is no debate. This is because the FedWatch tool is predicting that there is a 93.9% probability that the Fed will continue its aggressive stance to fight inflation with back-to-back rate hikes of ¾%.
The Federal Reserve has shifted its focus from its dual mandate of maximum employment and inflation at a target range of 2%. Recent Federal Reserve FOMC statements and minutes clearly illustrate that the Federal Reserve is laser-focused on reducing inflation, with the clear understanding that the aggressive rate hikes will lead to an economic contraction and reduction in the labor force.
It is this stance that analysts and market participants have been concerned about as they fear it will lead to economic uncertainty resulting in a recession. The latest consensus is expected to show that job growth is still robust but contracting. The anticipation is that this report will indicate that approximately 272,000 new jobs were added last month and that the unemployment rate will remain steady at 3.6%.
On Wednesday, July 13 the BEA will release the most recent data on inflation. If the most recent inflationary data from Europe is any indication of what next week’s CPI report will reveal we can expect to see that inflationary pressures continue to run hot with a possible uptick when compared to the prior month.
The most recent economic data indicates that the United States economy has deteriorated with consumer confidence moving dramatically lower. But it is also clear that the Federal Reserve will remain steadfast in its determination to reduce inflation from its current elevated levels and 40-year highs, and as such will continue to raise rates this month and in September.
Based on the extremely high probability that the Federal Reserve will enact a second consecutive rate hike of 75 basis points at the end of this month, it is certainly a plausible assumption that the recent selling pressure in gold has not concluded.
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Wishing you as always good trading,
