opinion

Gold held back by a higher dollar although core inflation expected to decline

Kitco Media
By Gary Wagner
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As of 4:43 PM ET gold futures basis the most active February contract is trading higher by $2.50 or 0.12% and fixed at $2036. Concurrently the dollar is also up fractionally, yielding gains today of 0.21% taking the dollar index to 102.521.

Trading was muted today as market participants await the Bureau of Labor Statistics inflation report, the CPI for December, which will be released at 8:30 AM ET on Thursday, July 11. Currently, core inflation stands at 4% with economists’ forecasts predicting that inflation will show a year-over-year decline of 0.2% taking core inflation to 3.8%. Economic forecasts are also predicting an increase in headline inflation with Thursday’s report expected to reveal that headline inflation continued to rise last month by 0.2% which would take this inflationary gauge to 3.2% year-over-year.

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Market participants and traders will glean this report, hoping to gain insight as to when the Federal Reserve will initiate its first interest rate cut this year. According to the CME’s Fedwatch tool, there is a 95.35% probability that the Federal Reserve will maintain its current level of interest rates between 5 ¼% and 5 ½% at the January FOMC meeting, which will conclude on the 31st of this month.

According to traders, the odds of ¼% rate cut at the March FOMC meeting are over 50%. The CME’s Fedwatch tool indicates there is a 62.7% probability that the Federal Reserve will initiate its first rate cut of the year in March taking Fed funds rates to between 5% and 5 ¼%, with a 34.3% probability that the Fed will maintain its current interest rate level.

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However, the probabilities favor that by the May FOMC meeting, the Federal Reserve will have reduced interest rates by at least ¼%. There is only a 6.5% probability that the Federal Reserve will not have initiated any rate cuts, a 39.7% probability that interest rates will have been reduced by ¼%, and a 51.5% probability that rates will be a full half a percent lower. Finally, this probability indicator suggests a 2.4% probability that interest rates in May will be between 4 ½% and 4 ¾%. For those who would like more information simply use this link.

Wishing you as always good trading,

Kitco Media

Gary Wagner

Gary S. Wagner has been a technical market analyst for 25 years. A frequent contributor to STOCKS & COMMODITIES Magazine, he has also written for Futures Magazine as well as Barrons. He is the executive producer of "The Gold Forecast," a daily video newsletter.

He has been a speaker for financial seminars including Futures West and the Dow Jones Financial Symposium which travels throughout the world.. Coauthor of "Trading Applications Of Japanese Candlestick Charting" a John Wiley publication.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.