Although gold prices had a modest decline in trading today, the overall fundamental environment that had caused gold pricing to trade above $2000 last week remains solidly entrenched. Today’s modest single-digit decline in gold resulted from market participants once again focusing on risk-on assets with U.S. equities rising. Specifically, a major rise of 1.97% in the NASDAQ composite indicates solid interest in the tech-heavy index. The Dow Jones industrial average gained 1% and the S&P 500 increased by 1.42%.
Positive market sentiment for US equities coupled with minor dollar strength could have easily tipped traders to take profits on long positions in gold. As of 5:25 PM EST gold futures basis the most active April contract is down $7.30 or 0.37% and fixed at $1966.20.
However, June gold futures which will be the next most active contract is currently fixed at $1983.10 booking the same dollar decline of $7.30 but are priced almost $20 above the April contract. The large differential of almost $20 between the two contract months clearly illustrates market sentiment is exceedingly bullish long-term for gold.
Market participants who were anticipating a Fed pivot from raising rates to cutting rates have been largely disappointed. However, it must be noted that the CME’s FedWatch tool indicates that professional traders are anticipating a pause in rate hikes in 34 days when the Federal Reserve concludes its May FOMC meeting on May 3, 2023. According to the CME’s probability indicator, there is a 67.4% probability that the Federal Reserve will not raise rates and a 37.6% probability that they will implement another 25 bps rate hike.
Lastly, the preferred inflation indicator of the Federal Reserve, the PCE (Personal Consumption Expenditures Price Index) will be released this Friday, March 31. Currently forecasts believe that inflation levels will remain elevated. If the PCE remains elevated as currently predicted it could pressure the Federal Reserve to raise rates rather than take a pause at the May FOMC meeting.
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Wishing you as always good trading,
Gary S. Wagner
