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Precious Metals Shine After Federal Reserve Changes

Precious metals traders flocked back into gold and silver futures today as the metals exhibited a stellar response to changes in the aggressiveness of the Fed’s monetary policy. Market participants continue to react to Chairman Jerome Powell’s speech at the Brookings Institution in Washington. Traders continue to focus on his remarks to slow the pace of upcoming rate hikes.

“Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down … The time for moderating the pace of rate increases may come as soon as the December meeting.”

As of 5:01 PM EST gold futures basis of the most active February 2023 Comex contract is fixed at $1817.40, after factoring in today’s largest one-day gain in two years of $57.50 or 3.27%. Although the gains in gold futures today were a combination of dollar weakness and buyers actively initiating long positions, traders bidding the precious yellow metal higher were the overwhelming and predominant reason for today’s 3.27 % gain.

Currently, the dollar is trading dramatically lower currently down by 1.23 points or 1.17%. Considering that gold gained 3.27%-dollar weakness accounted for roughly a third of the gains in the February futures contract of gold, quite different from the spot markets.

Spot or physical gold gained $34.30 roughly 60% of the move witnessed in gold futures. The noticeable difference in the gains of spot gold versus futures was that traders buying physical gold accounted for only $12.70 of today’s $34 plus gain, with the remaining $21.60 directly attributable to dollar weakness. This is according to the KGX (Kitco Gold Index).

Given that gold futures gained 3.27% that percentage gain was overshadowed when compared to silver’s remarkable gain of 5.46%. Currently, the most active March 2023 contract of silver is up $1.19 and fixed at $22.97.

Rate Hikes Expectations

As I spoke about yesterday, the reaction by investors at large, their prayers were answered, hearing the Fed will begin to slow down the pace of interest-rate hikes. However, they seem to be ignoring the fact that the Federal Reserve plans to continue to raise interest rates throughout 2023 and possibly 2024.

Chairman Powell made this emphatically clear in his speech yesterday saying, “It is likely that restoring price stability will require holding policy at a restrictive level for some time … History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

What is clear is that the rally in gold futures from $1621 to $1817, a 10.78% gain since November 3 (under one month) is a reflection of a major change in market sentiment by investors. The assumption that sparked the rally which began on November 3 was confirmed yesterday; the Fed will slow the pace of upcoming rate hikes.

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Wishing you as always good trading,

Gary S. Wagner