Gold Trades Sideways as Investors Wait For Next Week’s FOMC and CPI Report

Gold Consolidates as Traders Await Key Events

Tuesday’s price consolidation in gold indicated that the dramatic decline that occurred on Monday was more akin to a one-and-done scenario than the beginning of a correction. It was the equal or slightly higher low on Tuesday that was just as important as the fractional gains. It indicated solid short-term support for gold futures at around $1780.

Yesterday gold had a respectable price advance recovering roughly half of the decline traders witnessed on Monday. But I believe the key takeaway from the fractional gains on Tuesday and today is that market participants are waiting for the latest information on inflation when the CPI (Consumer Price Index) is released next Tuesday and the Federal Reserve’s last FOMC meeting of the year concludes on the following day.

Headlines Driven Market and Next Rate Hike Probabilities

The most important factor in recent and upcoming price changes in gold is that it has been and will continue to be driven by headlines.

Market participants are by large anticipating that the Federal Reserve will announce a 50-basis point rate hike rather than 75-basis points. According to the CME’s FedWatch tool, there is a 79.4% probability of a 50-BP rate hike, with only a 20.6% probability of a 75-BP rate hike by the Fed next week. This would break the 75-BP rate hike cycle set by the Federal Reserve beginning in June. This means that a rate hike of ½ a percent next week has been largely factored or baked into the pricing.

Gold and US Dollar Price Action Today

Gold futures basis the most active February 2023 contract opened in New York at $1799.50 and traded to a high of $1806. As of 4:35 PM EST, the February contract of gold futures is currently fixed at $1801.20 after factoring in today’s net gain of $3.30. This is just above the 200-day MA which is at $1800.20.

Today’s gains in gold pricing were based upon dollar weakness combined with fractional selling pressure in gold. The dollar is currently trading lower by 0.28% and gold futures are currently up 0.18% higher which confirms that today’s price change in gold is a net result of that combination.

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Wishing you as always good trading,

Gary S. Wagner