Gold Futures Surge to $2014.90 Only to Retreat Below $2000, A Clear Indication of Uncertainty

There is a consensus amongst analysts that the precious yellow metal will continue to track higher, but there is also a consensus that there is an extreme amount of uncertainty as to the short-term direction or price changes over the next couple of weeks.

Upcoming FOMC Decision and Global Banking Crisis

This uncertainty is based upon the upcoming FOMC decision on its next rate hike; whether it will pause, or raise rates by ¼%. Secondly, and of equal importance is the current banking crisis that has now spread globally to include Credit Suisse of Switzerland.

On Sunday Credit Suisse had new ownership by rival UBS AG in an all-stock purchase priced at 3 billion francs ($3.25 billion) took ownership of Credit Suisse. Guarantees were made by the Swiss National Bank to either bank allowing them to borrow up to 100 billion francs, which is backed by a federal default guarantee. This agreement was the result of work between the Swiss National Bank and the U.S. Federal Reserve.

Last week’s banking crisis in the United States and Switzerland intensified potential uncertainty and concern of contagion spreading. MarketWatch quoted a note by Otavio Marenzi, CEO of Opimas, a management consulting firm focused on global capital markets that said, “The SNB and the Swiss government are fully aware that the failure of Credit Suisse or even any losses by deposit holders would destroy Switzerland’s reputation as a financial center”.

Simon Ree, the founder of Tao of Trading options academy school, commented, “The SVB failure highlights the potential for other skeletons to be hidden in closets and the market will spend the next few weeks/months hunting them out. Even just the extreme volatility we’ve seen on bond markets the last five days renders any attempt to ascribe a value to other asset classes redundant.”

Gold Market Participants Exhibit Caution In Face of Short-term Uncertainty

Although the vast majority of analysts firmly believe that gold will have higher value long-term, they almost unanimously agree that there is an extreme amount of uncertainty in the short-term. This is in regards to both the resolution of the banking crisis as well as the monetary policy of the Federal Reserve over this next year.

As of 5:20 PM EST gold futures basis the most active April contract is currently fixed at $1982.80 after factoring in today’s gain of $9.30 or 0.47%. Gains in gold futures closely matched the decline in the dollar which lost 0.44%, the dollar index is currently fixed at 102.905.

Lastly, spot gold is currently fixed at $1978.40 after factoring in a decline today of $10.90. The decline in spot gold comes entirely from selling pressure. Dollar weakness added $10.50 of value and selling pressure moved gold $21.40 lower resulting in the $10.90 decline.

The discrepancy between spot gold closing lower and gold futures is unchanged until you incorporate dollar weakness. This indicates that market participants are extremely sensitive to short-term uncertainty as seen in gold’s spot pricing and a wait-and-see attitude by futures traders.

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Wishing you as always good trading,

Gary S. Wagner